Capital & Class. - 1982. - Issue 17

CAPITAL & CLASS 6 cut in the National Insurance Surcharge . The CBI, which had been so critical of government policy i...

Author: Conference of Socialist Economists

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CAPITAL & CLASS

6

cut in the National Insurance Surcharge . The CBI, which had been so critical of government policy in 1980 and throughout most of 1981, was relatively satisfied by this budget ; and indeed the Chancellor did meet most of its demands . Table 1 What the CBI asked for and what the Budget gave BUDGET ACTION

CBI PROPOSAL National Insurance Surcharge Interest rates Capital spending Energy costs Rates Capital Taxes

2 per cent cut

1 per cent cut

Reduce from present high level £1 billion extra by 1983/4

Bank's base rate down 1 per cent Some help for building

Bring into line with main competitors Gas prices frozen to end of year ; relief for bulk users of electricity 15 per cent business derating Index bands and thresholds at 1979 levels . No capital gains tax on inflationary gains Retirement Relief CTT relief for businesses

None Indexation from 1982 levels Yes Some relief given No No

Regional Development Grants Income Tax

Abolish 4 month delay

Indirect Taxes Smaller Firms

No change Boost equity investment

Some assistance . Corporation tax threshold raised

Innovation

Increase assistance to R & D

Company residence and tax havens

No premature action this year

Innovation package worth £100 million over 3 years No premature action this year

Capital allowances

Give 2 per cent allowance for commercial buildings Relax restrictions on smaller workshops

Index allowances and bands in line with inflation

Allowances and bands raised by slightly more than inflation (14 per cent) VAT unchanged; excise duties raised

Extension of industrial building allowances Restrictions relaxed

(Source : CBI memorandum to Treasury and Civil Service Committee, Fourth

Report, 1981-1982, (HC 270), Appendix 5) The TUC score was not quite so impressive . The City's reaction was also favourable . The principal cause for satisfaction for many City analysts was that the Government had given its tax reliefs to industry rather than to consumers or personal

BEHIND THE NEWS-1982 BUDGET

7

tax payers, and still more important, had not adopted the reflationary programmes pressed upon it either by the Tory wets (Gilmour had been proposing a £5 billion stimulus), or the TUC, which had put forward an £8 .3 billion recovery programme . The budget still adhered to the framework of the Medium Term Financial Strategy . The Financial Statement announced : `The Government's objective is to continue reducing the rate of inflation, thereby promoting a sustainable growth of output and employment . The purpose of the medium-term financial strategy is to set out the financial strategy within which policy is being operated .' (Financial Statement and Budget Report 1982-3, p .13) Control of the money supply remained pre-eminent . Certainly no-one could describe the budget as a dash for growth . The enthusiasm of Conservative MPs for the budget stemmed from a widespread feeling of relief that the worst of the recession might actually be over, and that the Treasury team was not bent on the total destruction of the economy and the party . The budget seemed to show that the economy was recovering, and that there would be at least one tax-cutting budget before the next election . The 1981 budget had caused such a profound shock because it had increased the tax burden so dramatically at a time when unemployment had already reached 2 1/2 million and was still rising . The attraction of monetary rectitude began to wane as the Government's popularity plummeted . In the nine months following the budget the Government was to become the most unpopular government since the war and Mrs . Thatcher the most unpopular Prime Minister . The Tory wets had led the criticism of the Government's inflexibility and what they saw as a `doctrinal' economic policy . The 1982 Budget appeared to give few concessions to their views . There was certainly no reflation of the size for which they had been calling and no prospect of any significant reduction in unemployment from the budget measures themselves . But they nevertheless hailed the budget as a major victory . The reason was that they saw the budget as in practice marking the abandonment of the Medium Term Financial Strategy as the framework for managing the economy . The Government had been forced to revise upwards its targets for money supply (see Table 3) and the PSBR and announce that in future it would decide its monetary policy on the basis of a range of indicators, not just one . For the wets the 1982 budget marked the end of the monetarist experiment . There exists a great deal of confusion about this monetarist experiment of the Thatcher Government . Many supporters of the Government argue against the wets that the financial strategy has not been abandoned, merely improved and modified in the light of changing conditions . A third group, which includes the Treasury and Civil Service Committee doubts that a monetarist experiment was ever begun. Does the 1982 Budget throw any light on who is right?

8

CAPITAL & CLASS

The Medium The centrepiece of the `monetarist experiment' was the Medium Term Financial Term Financial Strategy (MTFS), unveiled in the 1980 budget . This Strategy was the one genuine innovation in stabilisation policy which the Government has so far introduced . It specified targets for the rate of growth of money supply (taking £M3 as the most reliable indicator) and targets for the PSBR over a four year period, during which both were intended to be reduced gradually (see Table 2) . What was new about this was not the publication of target ranges for the money supply, but target ranges over a period of years ahead, and a Government commitment to take whatever action was necessary to ensure that the targets were met . The intention was to break inflationary expectations at the least cost in lost output and unemployment . Table 2 : Ranges for Growth of the Money Stock fM3 and PSBR

1980/81

1981/82

1982/3

1983/4

£M3 % change during year

7-11

6-10

5-9

4-8

outturn

20

14 1/2

PSBR £ billion

8 1/2 2 1/4

1 1/2

as % GDP at market prices 33/4

3

outturn £ billion

13 1/2

101/2

as % GDP

6

41/4

Source : Financial Statement and Budget Reports, 1980/81, 1981/82, 1982/83 .

This financial strategy was shaped by the policy commitments the party had made in opposition, by the debates among monetarist economists about the best ways to control the money supply, but perhaps most fundamentally by the financial strategy inherited from the Labour Government . The commitment to control the money supply, to bring down inflation, to set monetary targets and to control public expenditure by cash limits were all policies that emerged decisively in 1976 in order to retain the confidence of the financial markets . That was the year of Callaghan's famous monetarist declaration to the Labour Party Conference: `We used to think that you could just spend your way out of a recession and increase unemployment by cutting taxes and boosting government spending . I tell you in all candour that that option no longer exists, and that insofar as it ever did exist, it worked by injecting inflation into the economy . And each time that happened the average level of unemployment has risen . Higher inflation, followed by higher unemployment . That is the history of the last twenty years .' (Blackpool, 28 .9 .76)

BEHIND THENEWS-1982 BUDGET

9

The paradox of Callaghan's statement was that while Labour Governments may have thought they had that option they had never acted upon it, least of all when Callaghan was Chancellor . It had been the Conservative Chancellors, Maudling and Barber, who attempted to spend their way out of unemployment . But after 1975, while the Labour Government stumbled into monetarism as a pragmatic necessity, the Conservative party, now in opposition, became ideologically committed to it . The financial strategy to control inflation was a central element of the social market strategy that dominated debate on one wing of the party . It involved the rejection of Keynesianism and the notion that governments could select target rates of unemployment and output and then engineer their achievement through demand management . In releasing governments from their responsibility for the level of unemployment or the rate of growth, it laid on them the responsibility for maintaining sound money . Sound money was one of the key elements of the market order which the social market strategy sought to create and it implied the necessity of large reductions in public expenditure to make control of the money supply easier and to restore incentives . These ideas were most forcibly stated in publications from the Centre of Policy Studies and the Institute of Economic Affairs, but they also found their way into the party's main policy document on the economy, The Right Approach to the Economy, published in 1977 : Òur prime and overriding objective is to unwind the inflationary coils which have gripped our economy and threaten to throttle the free enterprise system. We shall aim : - to continue the gradual reduction in the rate of growth of money supply, in line with firm monetary targets - to reduce our enormous burden of debt by repaying foreign borrowings and aiming for a steady contraction in the government's domestic borrowing requirement . (RATE, p .8) This theme was reiterated in the 1979 Manifesto : `To master inflation, proper monetary discipline is essential, with publicly stated targets for the rate of growth of the money supply . At the same time, a gradual reduction in the size of the Government's borrowing Requirement is also vital . . . The State takes too much of the nation's income ; its share must be steadily reduced . When it spends and borrows too much, taxes,, interest rates, prices and unemployment rise so that in the long run there is less wealth with which to improve our standard of living and our social services .' (Conservative Manifesto 1979, p.8) The spread of monetarist ideas in the Conservative party owed much to the writings of a number of influential monetarist economists . Monetarists agreed about the priority to be accorded to ending inflation, but there was considerable disagreement over the best means to do it . Two broad positions can be distinguished . Hayek, as well as adherents of rational expectations models like Patrick Minford, have argued that the best way to stop an inflation is to do it at a stroke in order to break the inflationary psychology and to make the period of adjustment as short as possible . `Gradualists' who include Milton Friedman and David Laidler have argued in favour of

10

CAPITAL & CLASS a more cautious approach, squeezing inflation out of the economy by proclaiming and adhering to monetary targets fixed in advance on a declining scale for several years ahead . The MTFS adopted in 1980 clearly owes its inspiration to this school of monetarist thinking . Hayek's blitzkrieg on social democracy, intended to halt inflation, slash public spending and taxes, and weakening union power by repealing the Trade Disputes Act of 1906, lost out to a step by step strategy . The MTFS was very simple in conception . As the 1980 Financial Statement announced : `The budget is a further stage in the Government's medium term policy of reducing inflation and improving the supply side of the economy . The central feature of the anti-inflation policy is the gradual reduction of monetary growth . To achieve this reduction without intolerably high interest rates public sector borrowing will be reduced over the medium term . The Budget is intended to achieve a real level of public sector borrowing in 1980-81 signficantly lower than in 1979-80' (FSBR, 1980-8 1, p .3) A progressive deceleration in monetary growth was therefore planned in order `to create conditions for a sustainable growth of output and employment' . Medium term targets were announced so as to encourage a change in expectations about the future rate of inflation. The Treasury claimed that the speed with which inflation fell would depend on expectations : Ìt is to provide a firm basis for those expectations that the Government has announced its firm commitment to a progressive reduction in money supply growth . Public expenditure plans and tax policies and interest rates will be adjusted as necessary in order to achieve this objective .' (FSBR, 1980-81, p .16)

A crucial aspect of the strategy is contained in that last sentence . The Government committed itself to using fiscal instruments, changes in taxes and spending, or monetary instruments, especially changes in interest rates, in order to ensure that the monetary aggregates and the PSBR were kept on a downward path, à profile of movement in the right direction' . This meant that if money supply threatened to overshoot the target range, the Government was committed to raising interest rates or cutting the PSBR, whatever the short-term consequences for investment and employment might be . If carried out such responses would tightly restrict the Government's freedom of manoeuvre . In order to preserve the credibility of its financial strategy its hands would be tied, quite deliberately . Policy responses would be automatically triggered . Because of the difficulty of expecting Governments to agree to this many social market theorists have suggested that the control of the money supply should be removed from direct political control, and entrusted to a non-elected permanent state agency . The element of self-inflicted inflexibility was what struck many observers about the strategy . The Government's political will was soon tested, in part because in its initial formulation of the MTFS it


11

gave the impression that there would be no deviation from the targets . This was particularly true of £M3 . It was less tied to a target for the PSBR, because it acknowledged the inherent difficulties of controlling the PSBR . It was stated that the PSBR path was not a target path but à projection of the course of the PSBR, based on the assumed growth of GDP and the present public expenditure plans, that should be broadly compatible with the monetary objectives' . Nevertheless it was also stated that a progressive reduction in PSBR was essential in order to avoid èxclusive reliance' on interest rates in controlling the money supply . The practical problems the Government encountered were deciding how the money supply was to be defined and deciding what economic indicators were to be chosen to indicate whether the targets were being met or not . The difficulties were aired in a Green Paper, Monetary Control, drawn up by the Treasury and the Bank of England and published in March 1980 . It discussed various ways to institute the kind of control of the money supply which the Government wanted ; direct quantitative controls on bank assets and liabilities ; manipulation of short-term interest rates ; and monetary base control . All of these were seen to have difficulties in their operation . None offered certain control of the money supply, not least because of the difficulty of defining what money supply was for the purposes of control . In its first year the MTFS did not fare well . It is clear in retrospect that the Government utterly misjudged the scale of the recession that was triggered by the doubling in the price of oil between 1979 and 1980 and sharpened in Britain by the appreciation of sterling and the high interest rates . What the Government envisaged in its 1980 Financial Statement as `some losses of output', turned into the deep slump particularly in manufacturing (manufacturing production dropped by 18 per cent between the second quarter of 1979 and mid 1981), and soaring unemployment . On top of this the Government failed to control public spending, partly because of its commitments to raise expenditure on defence and the police, partly because of decisions to aid the nationalised sector (particularly BL and the extra funds given the NCB to avert a miners' strike over pit closures), partly because of its decision to accept Clegg awards, and partly because of defeats in Cabinet for the Treasury team over public expenditure cuts in the autumn of 1980. The result was a substantial overshoot of the targets for PSBR and £M3 (see table 2) . Many of the Tory wets believed that this would force the burying of the MTFS and the adjustment of policy so as to mitigate the effects of the recession rather than intensifying them . . . Some sections of capital were very critical of the Government's policies, particularly the very high level of interest rates and the inaction over the high level of the pound .

12

CAPITAL & CLASS The 1981 Budget when it was announced stunned everyone . The targets for £M3 were not revised ; they were reaffirmed . The Chancellor was apparently ready to protect his financial strategy by funding the higher levels of public expenditure forced on him by the recession and his colleagues by raising taxes . The opening statement of the 1981 Financial Statement was uncompromising : `The budget represents a further step towards the achievement of the Government's medium term objective of bringing down inflation and creating the conditions for sustainable growth of output and employment . In order to permit its monetary objectives to be met at tolerable interest rates, the Government's aim is to contain public sector borrowing to a real level well below that of 1980-81 .' (FSBR 1981-82, p .4) The Government admitted its failure in the previous year : `The past year has seen greater monetary growth and public borrowing than was intended, but the Goverment is determined to ensure that the essential thrust of its financial strategy for the medium term is maintained .' (Ibid., p .15) As the report delicately put it, the `projected level of public expenditure implies a tax burden significantly higher than the Government would wish' . The result of the 1981 budget was that the overall tax burden was higher than it was under the Labour Government . The gap between the retail price index and the Government's new tax and price index, which the Government had specifically introduced to register the benefits of its planned tax reductions on living standards, widened, and the tax and price index rose above the increase in earnings for the first time . The Financial Statement acknowledged that the plans for tax reductions in subsequent years were in jeopardy and declared that great attention must be paid to the forthcoming review of public expenditure . Nigel Lawson, Financial Secretary to the Treasury, argued on television that further public expenditure cuts of £6 billion would be necessary if the Government was to achieve its promise of tax cuts before the next general election . Comments like that created the image of a spiral of more and more cots leading to a steady erosion of the tax base and continually rising unemployment, leading eventually to the need for still more cuts . This deflationary logic led to increasingly open criticism by dissident Conservatives inside and outside the Cabinet . The Treasury Ministers were again defeated when they proposed further cuts in the summer of 1981, while the riots at Easter and in July, together with the collapse of the Conservative vote at Warrington, intensified the political pressures for a change of course . Senior figures in the party, including Pym and Thorneycroft, openly called for such a change at the beginning of August . Thatcher responded to this challenge by reshuffling her Cabinet, removing or demoting most of the wets, and reinforcing the team of dedicated monetarists at the Treasury . But although she nominally strengthened her position in Cabinet, she still could not win the crucial battles on public expenditure because former allies like Nott and Biffen deserted her. Thatcher's position in the party was still secure, but the loss in the autumn of Crosby and

BEHIND THENEWS-1982 BUDGET

13

Croydon NW to the Alliance were warning signs of a possible electoral collapse unless the economy improved . The budget judgement Howe had to make for 1982 centred on whether taxes should be increased again and interest rates raised to keep to the letter of the MTFS . His decision does mark a significant change in the conduct of the Government's monetary policy . The Government acknowledged that its targets for £M3 had not been met but it now came armed with a string of reasons why this did not matter . The fullest statement of its thinking can be found in the cross examination of the Chancellor, Treasury and Bank of England officials by the Treasury and Civil Service Committee (Fourth Report, 1981-82, HC 270) . They argued that the failure to achieve the £M3 target did not represent a failure of the MTFS and would not cause higher inflation, because all other measures of the money supply, as well as other indicators, particularly the exchange rate and the real level of interest rates, indicated that financial conditions continued to be tight, and that the Government was still having success in exerting downward pressure on the inflation rate . £M3 which in the March 1980 Green Paper had been declared to be the aggregate most suited to be the target for monetary policy, was now held to be unreliable as an indicator of underlying monetary conditions, because of structural changes in the financial markets, partly the result of government action (the abolition of the corset on bank lending), and partly the result of the growth of new forms of bank lending (especially loans for house purchase) . What all the witnesses emphasised was that the conduct of monetary policy now depended once more on the Treasury and the Bank making expert judgements about monetary conditions, according to a range of indicators, and adjusting targets and policy instruments accordingly . Any suggestion that there should be an automatic mechanical response of policy to changes in one of the key indicators was now completely rejected . But this would seem to mean an acceptance that monetary policy is henceforward discretionary within quite wide limits . What emerges most strongly from a review of the history of the MTFS is that the monetarist experiment has indeed been limited . The caution of the Treasury and the Bank would have made a'Blitzkrieg' approach extremely difficult to implement, but they have also succeeded in steadily transforming the gradualist approach . What has emerged is a style of economic management based upon fine tuning of the monetary aggregates in place of the former Keynesian emphasis on fine tuning of spending aggregates . Monetarists have become much more cautious recently in their claims, and many now argue, in true revisionist syle, that what is important is not the monetary targets as such, but that the Government, instead of having a target for output or employment, should pursue a target for money GDP . The growth of money GDP should be contained by continual downward pressure on the monetary aggregates and on the PSBR, though not in line with any fixed targets . But this removes from monetarism its

14

CAPITAL & CLASS distinctiveness as a doctrine . It becomes hard indeed to see how it differs from the demand pull analysis of the 1930s . It offers no clear technique for controlling inflation other than the traditional deflationary instruments of sound finance . Table 3 MTFS Target Ranges for the growth of the fM3 1980-81 planned % range during year Budget 1980 Budget 1981 Budget 1982

7-11

1981-2

1982-3

6-10 5-9 6-10 5-9 8-12

1983-4

1984-5

4-8 4-8 7-11

6-10

Source: FSBR 1980-81, 1981-82, 1982-83) Conclusions

Failures in two years to achieve the £M3 targets, and their drastic revision in the 1982 budget has convinced many critics of the government's policy that the moderation of inflation which has been achieved owes little to the monetary targets and a great deal to the depth of the recession and the numbers of unemployed . On this view the factors that triggered the recession - the exchange rate, interest rates, and the rise in taxes- have been the principal factors in bringing down inflation . Many monetarists understandably view the Government's policies with dismay . They were not expecting another exercise in fine tuning . The government rejected the case for trying to end inflation and curb union power at a stroke, arguing that its gradualist strategy was a surer and less painful way of bringing down inflation . But this strategy has been compromised by the Government's failure to carry through other crucial aspects of the social market strategy - public expenditure cuts and cuts in taxation, and significant reforms to reduce union power in the labour market . In its first three years in office the Government for all its cutting has increased public expenditure over dl and has increased taxes . Progress on trade union legislation has been slow . But for a year now the Treasury Ministers have been busy proclaiming the end of the recession and the start of a soundly based and sustainable recovery . What is so striking about the budget in the context of the Government's whole policy is that the Government on the basis of its own analysis and its own programme can have few grounds for supposing that such a recovery is in fact under way . This is why Milton Friedman has publicly despaired of the Thatcher experiment, blaming its failure on resistance from within the Cabinet and the civil service . The major bonus for the Government is that the depth of the recession has caused a massive shakeout of labour and a substantial increase in productivity, as well as a sharp reduction in strikes and in pay claims . But there is no certainty that this increase in productivity


15

will be sustained, or that profits have been restored sufficiently to generate an investment boom ; and if they do there is every likelihood that pay demands will increase . The Government has not demonstrated that bringing inflation down is compatible with falling unemployment and rising output . It has only so far demonstrated that it is compatible with precipitating a slump . The significance of monetarism as a technique for controlling inflation is receding . The Treasury and Civil Service Committee was right in its report in Monetary policy in 1981 when it concluded that the monetarist experiment even at that time was half-hearted, because the authorities were attempting to control monetary targets and to keep interest rates down at the same time . Such discretionary interventions have little to do with the enthusiasm of monetarists for rule governed policy making . The 1982 Budget takes the process a stage further . Flexibility of response is now emphasised along with the traditional expertise of the Bank and the Treasury in making judgements about monetary conditions . But monetarism still has another meaning . It can be seen as the reassertion at the level of policy of the need to restore and redefine certain essential conditions for the reproduction of capital . The shift back to sound money as the priority of government policy took place in the 1970s, an era of declining profitability and renewed slump, which also witnessed the weakening of the external disciplines on money supply caused by the disintegration of the Bretton Woods system . The severe problems of returning to a regime of balanced budgets have necessitated a new set of rules to safeguard the integrity of the market sphere from possible encroachment by non-commodity production during a period of major reconstruction and rationalisation . Samuel Brittan in his recent reassessment of monetarism remarks that `Marxists could legitimately point out that there is an uneasy resemblance betweeen Friedman's natural rate of unemployment and Marx's reserve army of the unemployed .' He goes on to say : `Where the Marxists go wrong is in believing that the mere transfer of ownership could abolish this army without also removing valuable properties of the existing system, such as personal choice of job, consumer freedom, to spend where he or she wishes, freedom to organise collectively, and an adequate social security minimum .' (How to end the Monetarist Controversy, IEA 1981, p.121) . He seems unaware of the other properties of the existing system, not quite so highly prized . From this perspective monetarism represents an attempt to legitimate the abandonment of responsibility for levels of employment and rates of economic growth and to protect the essentials of the market order, to re-establish in particular the sanctity of money as the universal equivalent for all commodities, the supreme incarnation of exchange value . As far as this project is concerned Government strategy has not changed . In the 1982 Budget the Government did

16

CAPITAL & CLASS cease trying to stick to a rigid and theoretical application of monetarism and to that extent satisfied its Conservative critics . It returned to the cautious, orthodox, defensive policies for managing the recession which had been already fashioned by the Treasury and the Bank under the Labour Government . Restrictive financial policies have enabled the Government to cope with the second oil price rise . After an initial inflationary surge to over 20 per cent as in 1974-5, the inflation rate has again been brought down to single figures . But the cost each time has been a doubling of unemployment which was not subsequently reversed . The Government's hopes for faster growth and falling employment depend partly on its own ability and willingness to restructure the state and bring about a permanent reduction in the power of organised labour, partly on the encouragement it can give to management to reorganise their businesses on their own initiative and restore profitability and competitiveness, and partly on the recovery of the world economy from recession, particularly the US economy . For all these questions the budget was largely irrelevant . It certainly heralded no great new programme of intervention and modernisation by government to restore competitiveness and boost profitability . If the recovery does prove significant it will not be due to this budget or to the MTFS . As the TUC argued, this budget has done nothing to change the prospects for the year ahead increasing unemployment, near stagnant production, and declining living standards . The Government will be fortunate indeed if the outcome is substantially different .

6 6 4P 4P Interview with Tony Benn

This interview took place on 26 November 1981, and was conducted for a proposed Labourism working group within the CSE . We publish it here with an introduction by the interviewer, Geoff Foote. The questions asked in this interview are not the usual ones put to Benn . They attempt to confront him from a Marxist tradition which is hostile to the Labour Party . As such, they may seem anachronistic to many who now see the Labour Party as the logical vehicle of working class aspirations, representing as it does the organised trade union movement . However, this has involved the shunting aside of important questions such as the class nature of the state, the best form a revolutionary party needs to take in the present period, and the problems of a workers' dictatorship . Such questions have rarely been discussed in the British workers' movement, and at the moment are none too popular in most sections of the Left . Nevertheless, it is not outside the bounds of reason that the deepening capitalist crisis and the increasingly arbitrary reactions of the state to protest may yet lead the Left, and eventually the workers' movement, to look to a revolutionary alternative . Tony Benn has played a major part in convincing many on the Left that the Labour Party is a suitable vehicle for working class aspirations . He has moved from his days as a Wilson technocrat at 'MinTech' to a more militant position on the Labour Left, taking up the demand for workers' control in industry, radical redistribution of wealth, and nuclear disarmament. As a cabinet minister of eleven years standing, he is able to give the more militant left a national hearing which would have been much more difficult if it had tried it on its own . In this way, despite his own criticisms of Marxism, he has come to represent a movement with a solid social base, much of which calls itself Marxist . That movement may well be quite dependent on C&C 17 - 8

18

CAPITAL & CLASS him personally for its present chances of success in the Labour party (though this cannot be said with certainty at the moment) . In his thinking, Benn represents something new in the Labour Party . Ralph Miliband, in his important work, `Parliamentary Socialism', argued that throughout its history the Labour Party has been absolutely dogmatic in its rejection of extra-parliamentary action, even as a supplement to parliamentary activity ; and as a result is hopelessly committed to the present political and economic system . This was a view shared by many on the New Left in the 1960s and 70s . However, it is a theory which has been negated by the present Labour Left . Benn has expressed a belief in extra-parliamentary action as a supplement to the radical reforms needed to create a classless society . Indeed, as his arguments and actions over the UCS work-in in 1971 demonstrated, Benn sees such action as an essential part of the answer to Britain's ills. The corporatist welfare state, brought to fruition by the postwar Labour government has failed to develop the productive forces consistently since the mid-1960s . The resulting economic decline has made it increasingly difficult for union bureaucrats, employers' representatives and governments to work out amicable solutions to class conflict and productivity . Benn's answer to this economic decline is to demand more democracy, along with an expansion of effective demand protected by import controls . The old nationalised industries have failed to meet expectations, and capital has remained too powerful vis-a-vis the trade unions . Therefore, a new constitutional settlement between capital and labour is needed, and this involves new forms of democracy outside the traditional parliamentary forms . Industrial democracy, open government, extraparliamentary agitation : these are the prescriptions Benn offers as a cure for the malaise affecting Britain . In this sense, Benn gives a potent expression to the hopes and ideas of the New Left which has grown up outside the Labour Party since the mid-1950s . This movement, including CND, Vietnam Solidarity, and the Institute for Workers Control, represented a real source of radical sentiment waiting to be tapped by a national party . It was for a long time (with exceptions) dismissive of the Labour Party . Labour seemed to have played out its role as a radical standard bearer, and seemed hopelessly lost under Gaitskell, Wilson and Callaghan as far as any fundamental reorganisation of society was concerned . Tony Benn has played a central role in channeling much of this movement into the tradition of Labour radicalism - which is basically the extension of trade union politics into the parliamentary arena . I would argue that it is the accretion of New Left radicalism on to traditional labourist thought which sets 'Bennism' apart in the Labour Party's history . However, while it represents something new, Benn also represents a major continuity in Labourism . Indeed, a crucial point which emerges from this interview is the continuity with an earlier tradition .

INTERVIEW WITH TONY BENN

19

Traditionally the mainstream of Labourist thinking has denied that workers are inherently exploited by capital through the expropriation of their surplus value . The Fabians directed Labour's economic thinking away from Marx towards Jevons and W alras, rejecting confiscation of the capitalists as a class in favour of judging private enterprise purely on the basis of individual firms' efficiency . Benn accepts this as much as he accepts the Keynesian economics which was superimposed upon it . As with the Labour Left who followed Mosley until he became a fascist, policies of protecting capitalist industry are foremost in his economic programme . Marx once argued that many English socialists did not like capitalists very much, but wished to retain capital . He had in mind early Ricardian socialists like Thomas Hodgskin, but it is a characteristic which has emerged as a dominant trend in labourism . Benn is very much part of this trend . The inequalities of wealth and poverty are abstracted from the social relations of capital, so that socialism becomes a question of the amelioration of capital's effects rather than the abolition of the sale and purchase of labour power . Tony Benn does not call for the abolition of capital, but for a new relationship between the classes, in which organised labour will play a much more powerful role than hitherto . Public ownership is restricted to the commanding heights of the economy by Benn - the position put forward by Harold Wilson to paper over the struggles over Clause IV of the party constitution . In this way, industraial democracy becomes a means of controlling capital, preventing capitalists from acting against the workforce but maintaining capital as a means of allocating and exploiting labour . In foreign policy, Benn carries on the tradition of radical dissent to militarism and chauvinism which stretches back to the nonconformist Liberalism of the ILP and the bourgeois radicals of the Union for Democratic Control . This has been demonstrated recently by his reaction to the Argentine crisis (which has brought out the strength of chauvinism in other sections of the party) . In the interview it is brought out most clearly when his views on the Ulster war are questioned . He is one of the few politicians to dissent from the bipartisan support of the British army there, and as such continues the tradition of opposition to atrocities expressed by Liberals and Labourites in the Irish War of Independence . However, his public criticisms are very mild, and his call for a national liberation struggle by the British against the multinationals does not extend to support for the Irish liberation struggle . In the interview, he makes clear his rejection of the violent methods used in this struggle . However, most nationalist movements have had to use violence against their violent oppressors . To this extent the Irish struggle is no different of that of ZANU-ZAPU in Zimbabwe . In some ways, Benn's views are to the right of many of his Labour predecessors . In the 1930s, Stafford Cripps and the Labour Left refused to support the League of Nations, arguing that it was an imperialist body . Benn's views on NATO - the military organisation

20

CAPITAL & CLASS

set up to defend capitalism against Russia after the last war - are not as progressive, as he makes clear in the interview . Finally, it can be argued that Benn continues the major tradition in social democracy in refusing to recognise the class nature of institutions in capitalist society . This emerges in a clear and conscious manner in the interview, where on several issues from protectionism to the National Enterprise Board and worker co-ops, Benn stresses the voluntaristic aspect of such institutions . It is not the harsh logic of capital which forces them into a reactionary role, but the lack of will to run them . Such a view stretches back to Kautsky and beyond in the European workers' movement . The Labour Party has always seen institutions like the state as essentially neutral instruments of administration, fought over by the representatives of capital and labour through elections . Lenin's (and more ambiguously, Marx's) view of the state as essentially class instruments of violence to be smashed and replaced with a different class state, is totally alien to Labourist thought . The notion that armed bodies of men (and women) may be used to stop radical change is dismissed by Benn in the interview, where he says that `the ultimate victory of the British Establishment would be to persuade people like you that you couldn't win . . . My own experience is that they (ie the Establishment) are much more like paper tigers than military juntas' . On the other hand, as he admits in an interesting passage in the interview, the British Establishment did manage to keep him in the dark about the war in Ulster when he was in the Cabinet .

GF :

In your latest book, you argue that Britain is a colony, the last colony of the British Empire . Is this really the case, given the level of massive capital exports of Britain to Africa and Latin America, and its imperial role in Malaysia, Aden, etc . since the last war?

Benn :

It was an imperial country . In an economic sense, it still performs an imperial role, but from the point of view of the British people - not the British Establishment, but the British people - we are now governed by a complex range of international powers, the Common Market, the IMF, to some extent the Pentagon, the multinationals, and in a sense also we have some unfinished business from the earlier reforms . I suppose you could argue that the British people had always been a colonised people, but that they had been in the heart of an empire, just as you could say in Ancient Rome that the slaves were slaves even though Rome was the head of a great empire . But the point I was trying to draw attention to, and it was a phrase I deliberately fashioned for the purpose, was that even though those limited powers of self-government which we had struggled very hard to achieve have been gravely eroded, and that there was an element of a national liberation struggle about what we were doing . The fact that so many people have taken up the phrase, and either criticised it from the


21

Right as being too extreme, or from the left as being inaccurate, is an indication that the phrase performed its function, which was to make people think about the totality of our subjection to this interlocking group of international forces which operate in Britain . It wasn't a nationalistic point - it certainly wasn't that - but it was trying to get us to put ourselves alongside other peoples in other countries where they have been explicitly colonial like the people of Zimbabwe or the old colonies of the British Empire, and help people to see what it was that connected all those experiences - repression is too strong a word - all those experiences of subjection . GF :

So you're saying that Britain is still economically imperialist, but politically . . .

Benn :

Well, it still has in it, of course, people and companies who have a very big imperial role, but the British people never really benefitted to a full extent even from the flowering of our imperial period, and the capacity of the British people, by the use of the ballot box, to produce effective countervailing power to the power of capital in Britain has been diminished and reduced in a formal and legal sense . That is important, because there are certain things we could do as an elected government in the past which now as an elected government would actually be contrary to the law under which we're governed, notably in respect to the EEC, and in other senses in respect to very powerful external forces like the IMF, which in 1976 cut our expenditure, or the Pentagon, which operates bases here, the control of which is at best unclear and at worst quite outside our control .

GF :

Under this definition, even as you've given it now, Britain was a colony in 1931 when, in what Hugh Dalton called a `bankers' ramp', American bankers just told the Labour government that they had no confidence in that government unless that government carried through certain policies, and the government was forced to resign .

Benn :

That is true . The Labour government in 1931 could have acted differently and tried to mobilise public opinion against the pressure from the American and French bankers, and it's all recorded in the minutes of the 1931 cabinet which have been released from secrecy and which I have published with a foreward . It's true that that option was open, and that was what the TUC suggested - the alternative economic strategy 1931 model - it's also true that in 1976 we could have done it . On the other hand, in respect of some other issues like the bases and the Common Market, I'm not actually sure whether the power to do it is any longer in the hands of the British people through their elected representatives .

GF :

Are Britain's actions in Ireland that of a colonial power?

Benn :

That's a different situation . One is then changing language to use it differently . The Irish problem, or the British problem according to which way you're looking at it from, goes back very deep in our history . Of course, the Partition of 1921 - the Government of Ireland

22

CAPITAL & CLASS Act of 1920- was imposed upon Ireland and the British government by the threat of force by Ulster, with some Conservative support of the Carson variety . Our relationship with Ireland has been imperialist in character over a long period . I think the problem now is a problem of finding a way of bringing about reunification and unity, and trying to give the labour movement there a role . I'm not sure that the government of London has the same economic or political interest in the retention of Ulster that it had in its colonies proper . I think it's quite clear that if there was a readiness on the part of the majority of Protestants to accept reunification, then the British government would go along with it - indeed, more than go along with it, it would be absolutely delighted - and to that extent the problem is different in character, and of course difficult, and stems from an imperial relationship in the past .

GF :

You call for an international solution to the war - a UN force . Why can't the Irish people sort out their own problems?

Benn :

The anxiety is that if you really did move towards reunification and independence, then there would be a serious danger of an absolutely major and unbridled civil war breaking out, and then the British government would be under pressure, as an interim measure, to reinforce its troops there, as, indeed, it did in 1969, when the cabinet of which I was a member sent in troops . At that time, the B Specials were engaged in attacking the Catholic community, and when Jim Callaghan as Home Secretary sent troops in they were seen as a way of preventing civil war and were quite welcome in the Catholic areas . A few years later of course the whole thing was entirely different . So, in the event of a breakdown, or during a transitional period, if there is to be a problem of law and order to be faced, I suggested in May, and still think that it's quite sensible, that we should consider the possibility of a UN force, in that British troops are part of the problem and could not be part of the solution .

GF :

A UN force would be likely to harm the Loyalists . Don't you think that Loyalist resistance, together with their very powerful friends in Britain, could actually prevent any such policy being put forward?

Benn :

We have to recognise that the reunification of Ireland requires a degree of good-will . That's different from saying that we accept an Ulster Protestant veto of a kind that has meant in the past that they could always obstruct developments and then when the thing broke down call on British troops to protect their position . I think that phase is over, and even the Labour Party's statement which went through the conference, marks a major break with the old bi-partisan idea . But having said that, if there really was to be a major breakdown of civilised life as a result of fighting developing on a big scale, I think a United Nations peace-keeping force would be a better agency than the reinforcement of British troops .

GF :

You mention in your book several times that decisions on policies like


23

defence were made over the heads of the cabinet . Do you have any reason to believe that decisions on Ulster were made in such a way? Benn :

In the case of Northern Ireland, there was a cabinet committee of which I was not a member . The only occasion on which I can remember Northern Ireland being discussed in the whole cabinet when I was there - and I did try to get it discussed at the very end - was during the Ulster Workers strike when it was reported to the cabinet . That was when the power-sharing initiative failed . I suppose you could argue that there is a parallel - that very sensitive matters tend to be hidden away in committees . In the case of defence policy I think probably not even formal committees, but small gatherings of ministers brought together by the Prime Minister . A `Freedom of Information Act' within the cabinet would be a major advance . If everyone in the cabinet knew what was going on it would be an advance, let along a Freedom of Information Act extending to the Parliament or the public . Some of those delicate issues which matter most are least discussed within government .

GF :

What's your personal opinion of the Labour government's handling of the Ulster war in 1974-79? You have some criticisms of their handling of trade unions, what of the Ulster war? The truth is that Ulster has been undiscussed in British politics, which is one reason why the war continued on such a scale . And this assumption was that there was a bi-partisan policy - there would be marginal differences on economic policies, and marginal differences on other matters . But broadly ever since 1948, when Clem Attlee introduced the Government of Ireland Act, which as far as I can remember consolidated the Partition and tidied things up, there has been no real discussion in Parliament or in the House of Commons or in the cabinet about these matters, and that's one reason why the situation has deteriorated so sharply .

Benn :

GF :

Yes, you didn't quite answer the question of what you thought of the government's handling . . .

Benn :

Well, it was handled under those arrangements and therefore to that extent the idea that there might be a major alternative to the policy pursued was not on the agenda ; the day-to-day affairs were handled by a Cabinet committee, as far as I understand it, and the security affairs were presumably handled by the military and the Royal Ulster Constabulary, the Civil Service establishment, and the Secretary of State of the time .

GF :

What's your attitude to the Prevention of Terrorism Act?

Benn :

The Prevention of Terrorism Act, which was introduced in a great rush after the Birmingham bombings and was rushed through Parliament in a day - like most Bills pushed through Parliament in a day was unsatisfactory and repressive . There was a discussion in the Home Affairs committee of the Parliamentary party this year, following

24

CAPITAL & CLASS

revolts of a minor kind by Labour MP's opposed to it, and pressure was brought to bear on the need for a review of it which is now going on . In practice, it hasn't been effective in preventing terrorism, its first objective . It has involved a very considerable erosion of civil liberties . It has in a curious way recognised that Northern Ireland is not a part of the United Kingdom because of the extradition and removal procedures where people can be `rusticated', from one part of the United Kingdom to another . In my opinion it is, like many of these issues a symptom of an unresolved problem rather than the cause in itself . It's the same question arises over the H block and so on . I don't think you can see a solution to the Irish crisis in terms solely and simply of modifying the symptoms that derive from the unresolved political issue . That's the way I've seen it, but I strongly support the majority view of the Home Affairs committee of the parliamentary party that we should be strongly pressing for the repeal of the Act . GF :

Would you agree with Ken Livingstone's view that the IRA can't just be seen as criminals?

Benn :

We have to accept that it is a civil war-and you're not dealing with an outbreak of crime of the ordinary kind . I think that it is already recognised by the government itself in setting up special courts, the Diplock courts . But that is not to say that I favour the use of indiscriminate terrorism, which I do not . I think that is a great mistake - a great error - and I don't think that solves the problem either .

GF :

If you're against Britain being ruled from abroad, and call for a national liberation struggle against the IMF, Brussels, etc ., why don't you call for British troops to be withdrawn immediately on the grounds that they have no right to be there? Because there would be bloodshed on a very big scale . That's why I came up with a United Nations force proposal . Anybody who favours, and is serious about, the reunification of Ireland has got to recognise that if that is done without preparatory work for an alternative structure, in which I think the trade unions in the North and South have a big role to play, they have to answer this question : Ìf you begin with the withdrawal of British troops, what do you do when the civil war flares into an absolutely major confrontation with guerrilla warfare and mass deaths? If you are not prepared to face that problem, then to talk about withdrawal makes you very vulnerable . If you say, `Well, we'd like to see other forces go in to keep the peace', then at least there is a rational element in what you're saying . Otherwise, what would happen is that if you simply withdrew the troops tomorrow the blood would start running in the streets, and then people would see deaths on a very big scale, and they will try to move the troops in again. I don't think that that is a serious solution .

Benn :

GE

Your predecessor as MP for Bristol South-east, Stafford Cripps, said in 1934, when there were similar discussions going on in the Labour


25

Party about the transformation of capitalism into socialism, that Labour could expect opposition from Buckingham Palace . Do you see this? Benn :

Well, we've worked in the Labour Party on the assumption that the constitutional monarchy would not intervene . There is, of course, the case of Australia where the Governor-General dismissed Gough Whitlam although he had a parliamentary majority and was not at the end of his term . But the Labour Party is very practical in its approach . As I say, we work on the assumption that the constitution will prevail . If you're talking about something in the nature of a coup, then you're talking in different language, but the Labour Party has always believed, and I think understandably so, that if you do win and hold support, the likelihood of a coup can be much reduced . Therefore, in practice, the legitimacy conferred by a general election victory is a legitimacy widely accepted throughout the community . I'm not saying that among the British Establishment there will be unanimous acceptance . But the British Establishment without the consent of the British people is a fairly narrow group . We haven't been sitting working out how to cope with coups, but I personally think that you have to analyse this much more coolly, and I don't personally believe that this is the greatest threat we have to face .

GF :

I mention that because I noticed that during the Royal Wedding, both the Èconomist' and the `Financial Times' said that the best purpose of a monarchy was to prevent any Prime Minister who disagreed with their view of democracy ever taking office .

Benn :

Well, there's a lot of idle talk and chatter - and there were all the rumours in the papers about Cecil King and Lord Mountbatten and so on . But it's very easy to retreat from the real problem, which is winning public support for what you want to do, into a slightly paranoid laager, to use the South African word, where you're surrounded by your wagons and you're preparing for war rather than for persuasion . I think that's one of the cul-de-sacs up which the left can go, and by doing so it demobilises itself for its real function, which is to win support for change, and when that support is won I believe there is no power then which can stop it from being carried through .

GF :

Surely there was much support for change for President Allende in Chile, and yet the army prevented him . There's a lot of worries on the Left that there could well be a repeat of the Chile situation .

Benn :

That is called the 'Allende question', and I put it to Madame Allende because it's been put to me by people like yourself so often . I said, `Well, will you answer the Allende question?' She said , `Well whatever we'd done in Chile it wouldn't have made any difference because it wasn't really a Marxist state by any means . It had taken control of its own resources and it was strangled by international capitalism, and if we'd armed every worker it wouldn't have solved the problem .' So then I said, `Well, what about us?T 'Well', she replied, `look at

26

CAPITAL & CLASS Mitterrand, he'll be strong enough to withstand that, and so will you be .' And I put this to you for your consideration . The ultimate victory of the British Establishment would be to persuade people like you that you couldn't win . The pessimism of the Left is a product of the brainwashing of the Right . When the Right can persuade people like you and others that there's nothing they can do - that Buckingham Palace, the army, the CIA - could undermine any attempt to do anything, then that is the ultimate victory . That's when Fleet Street can really relax and say we've got them into such a state of pessimistic stupor that we'll never have to bother about them again . I prefer the phrase of Mao Tse-Tung when he looked at the massed forces of the American Seventh Fleet in the Straits of Formosa which had a capacity to destroy the whole of China and said that American imperialism is a paper tiger, and so it is . So we have to be careful . You have as a socialist to be a serious analyst about the forces opposed to you but at the same time retain the confidence that the British working people, when they're persuaded, cannot be defeated . As they say about bayonets, you can do everything with them except sit on them and dig coal with them . I think that the alleged strength of the Establishment - of the Right - is overestimated . My own experience is that they are much more like paper tigers than military juntas . That's my opinion .

GF :

I'm not saying that you are a pessimist to estimate the power of the army . But you're asking people to trust the army .

Benn :

No, I'm not asking people to trust the army . I'm saying that from my own experience as a minister of having seen how the army prepares for a national emergency that they're quite incapable of doing anything about it . During the oil tanker drivers dispute three years ago in the winter of discontent, the army was busy preparing for some emergency supplies, and after three weeks of bringing everybody back from Germany and putting 17-year old boys in uniform in charge of heavy lorries, they could meet about 10% of the nation's oil needs, whereas Moss Evans and the Transport and General Workers Union could run the emergency services without any risk of danger much more effectively in 24 hours . So I think we mustn't be mesmerised by this . That's all I'm saying .

GF :

On the question of defence, there's been a lot of discussion in the Labour party, but the majority support seems to be for NATO . I think you support NATO . Can you say why?

Benn :

Conference said we don't regard withdrawing from NATO now rather like withdrawing our troops from Ireland now - as the right solution . I'm an old collective security man because of my age, and I remember the pre-war years, and the idea that if nations are attacked they should defend one another is a sound principle . NATO grew out of a period of great anxiety and tension known as the Cold War . The official Labour Party policy, which I espouse - is that we should wind


27

up NATO and the Warsaw Pact and have a European Security system . What we've also said, which I think is right, is that we should go for a non-nuclear policy and secure the removal of the American bases and become like Canada, a country which has neither American nuclear weapons nor any nuclear weapons of its own . I think at this stage in history that that is the right course to pursue . GF :

On the economy, before we can solve the economic crisis we need to understand the cause, or causes, of the present economic crisis .

Benn :

It's the long-term problem that interests me most . Being the oldest industrial country in the world - having operated capitalism longer than anyone else - we are now suffering from a major logjam in that power in Britain derives from three contradictory forces . One is the power of capital released by Adam Smith when he wrote `The Wealth of Nations', and indeed it began in Cromwell's times, that was partly what the Cromwellian revolution was all about . Secondly, the power of organised labour, which at least at its minimum is capable of putting a spanner in the works of the mechanisms of the markets . Thirdly the power of the ballot-box which allows the poor who have no financial resources to buy with their votes the hospitals and schools that pile a burden upon capital . Until there is a new constitutional settlement between capital and labour and the electorate, what will happen is that capital when it's strong will be deadlocked by labour and that the economy will fail ; and then capital, through the media, will persuade the electorate that Labour has caused the weakness of capitalism and therefore will get elected on the monetarist policy we now have ; and then labour in rediscovering its role and its radicalism, will challenge capital and persuade the electorate to put it back in power . Until there is a more favourable balance of wealth and power in favour of working people and their families, you're never going to prevent the strike of capital which we've had for a long time from denying us the re-equipment that we need . In the short term, of course, this developing relative weakness of Britain has been greatly accelerated by the world recession which struck us at a time when we were weaker than many other industrial countries . So we were struck a blow which hit other countries at a time when we were weakest, and the reason that political discussion in Britain now has to go fundamental is that the `welfare capitalist state' opinion, or the `mixed economy option with welfare added', is no longer available to us in the old form . I think that's why the Labour Party has gone back to Clause 4 for some of its inspiration after a long period when really it had abandoned socialism, certainly at the top, and it had abandoned its historic links with the unions . I think of it primarily in those terms .

GF :

In a recent debate you got into trouble for supporting conference policy on renationalising oil without compensation . Why don't you support the nationalisation without compensation of all capitalist firms?

28

CAPITAL & CLASS

Benn :

Because that's not been our policy . The Labour Party has never been a party of confiscation . You can't have it both ways - you can't say, as I'm arguing, that conference policy should be put before the House of Commons, and then say that we are a party of confiscation, which we're not, we never have been . I think that in the terms of compensation there's been in the past, we've been very generous . In the case of the railways, which were bankrupt, and in the case of the mines, which were bankrupt, the compensation paid was a burden on the industry . But that has not been our approach to socialism, and to think of using the ballot box to confiscate -without any compensation - whatever assets that have been acquired and developed outside the public sector, as distinct from the attitude towards renationalisation, would not be an acceptable solution .

GF :

In an article you wrote in `Trade and Industry' in April, 1975, you said that the whole point about re-equipping Britain's manufacturing sector is one of `restoring British industry to a competitive position in world and home markets . . . we must inevitably guide our mixed economy to make this possible' . Don't you think that this is a nationalistic solution?

Benn :

Well, it depends . I don't know whether that article was one I wrote and pondered on, or whether that was one that was drafted for me . I would have to look and see because there's some stuff a minister writes which is the latest press release from his department . Still, let's assume for the purpose that I was saying it . I think it is true that whatever attitude you adopt towards the control of a surplus or profit and the use to which it is put, there still has to be in an industrial society, or a firm, or an industry, a capacity to meet a need in such a way as to permit that firm to have a market, and I think it would be naive to argue otherwise . The problem with British capital is that despite its claim to create capital out of savings and to regenerate the economy that way, their function has failed . As for the mixed economy, the Labour Party has never been for 100% nationalisation of every sweetshop . What we have talked about are the `commanding heights', which in terms of numbers of companies represents about 2% and in terms of output represents about 50% . Those commanding heights have to be publicly owned or controlled in order to integrate their planning with the survival, or development of the economy as a whole . My feeling is that the situation next time will be so much worse than in 1974 that the measures that will be required to restore our capacity to earn a living - which is not nationalistic, there's nothing nationalistic about earning a living - that the amount of public investment and ownership required then would be much greater than in 1974 .

GF :

Yes, when I said nationalistic there, it's whether the British working class, or the whole world working class . . . .

Benn :

Just to interrupt you there . We have import controls in this country at


29

the moment, very powerful ones, known as unemployment . The unemployed can't actually buy much from abroad . If we can restore our economy much nearer to full employment, then we shall expand the market . We're not in favour of exporting unemployment as a solution to the decline of British capitalism . I must make that reservation . You may come back to it . GF :

Yes, on import controls, it's what I mean by nationalism . It seems to me that the world is sliding into a trade protectionist war . They're trying their best to stop it, but it's happening . I feel that what the Labour Left is doing in calling for import controls is exactly what the Labour Party has often done in its history . As in the First World War, it lines the working class of its own nation behind the bourgeoisie of its own nation against the working class and bourgeoisie of other nations .

Benn :

Well, as with every policy, it depends who uses it and for what purpose . Nationalisation has been used by the Tories to close down what is inefficient and sell off what is efficient . That is nationalisation . If you say, `Well, if we apply that, isn't it the same', it isn't the same, the motivation is different . Import controls as a way of resolving the crisis of capitalism by exporting unemployment and starting a trade war is internationally very dangerous . If, on the other hand, you believe that the free movement of goods worldwide is a socialist principle, then you are handing over the whole socialist rule and socialist analysis to the forces of international capital . What we are saying is very simple - that if we are going to invest money into the expansion of our industry, it would be ludicrous to allow that industry to be destroyed while building it up . If in the process it led to higher unemployment, you would be buying less from abroad and, by a non-planned trade strategy you would be exporting future unemployment to countries that would otherwise be meeting the needs of Britain when Britain is fully employed . I've always regarded that as a highly theoretical argument . You've got to take a practical view about how we can get our resources back into play, and in that process we'll be creating jobs which will increase the demand in Britain for good produced abroad .

GF :

I see both protectionism and free trade as capitalist policies . In your advocacy of a mixed economy, weren't you falling into the fault pointed to by Marx about all English socialists of his time, that they don't like capitalists, but they want to maintain capital .

Benn :

I think it's a question of whether capital controls or capital invests . If you take the Post Office savings bank as the simplest case . If you have money in the Post Office savings bank that is an investment without a controlling feature . Unless one is thinking in terms of a society where there is absolutely no private investment - and that would mean that there was no pension fund available where people could actually have their deferred wages put aside to get an increment when they retired unless you're contemplating that, which I'm not, then you do have to

CAPITAL & CLASS

30

create an economic planning structure where the economy works for the community as a whole and for the people who create the wealth and doesn't work for the owners of capital, many of whom are international . I think that this is again a somewhat recondite and erudite way of looking at the real problem, which is that the people who create the wealth don't control the disposition of the wealth . But we've never argued for more in practical terms than the commanding heights of the economy . GF :

Another of the Labour Party's alternative economic policies is an expanded role for the National Enterprise Board, of which you were a champion . Isn't this just another example of corporatism? The NEB seems very similar to me to IRI in Italy . IRI was set up by Mussolini I don't think there's anything particularly fascistic about it, but it was certainly set up as a corporatist policy to make Italy great again . I was just wondering what . . .

Benn :

Well, the railways in Russia are nationalised ; does that mean our nationalised railways are Stalinist? I think you're on an interesting that there are tremendous dangers of corporatism - but point they're not confined solely to those instruments of public ownership . They're available in all sorts of other areas as well . Like many other techniques, corporatism can lend itself on the one hand to Mussolinii's Italy and on the other hand to Stalinist Russia . That's why I've laid so much stress on everything I've said and done on democratic accountability . That is the best insurance against corporatism . Of course, corporatism is a danger - if you have nationalised industries run like private corporations, and the National Enterprise Board looking more like IRI . But it doesn't have to be like that, and it wan't intended to be like that, and it developed in that way because there was no will in the Labour Cabinet at the time to make it different, and it is our determination to make it different . I don't think the parallel with Mussolini's Italty holds water unless you accept that there is an inherent ideological content in all institutions . Now I don't believe that . I think that institutions reflect the values of society insofar as you're able to inject those values into those institutions by political action of one kind or another .

GF :

Just further on this corporatism argument regarding trade unions . Don't you think that the basic role of trade unions in capitalist society is to fight for the best bargain they can for workers' living standards and not to help industry to recover in a capitalist world economy?

Benn :

That's a very narrow, American-type view which I suppose illuminated the early days of trade unionism - the craft workers who came out of the guilds, the general workers unions, and so on - but I think the unique characteristic of the British trade union movement is that at a certain period the idea of a political voice was established . It was about 100 years ago, when Henry Broadhurst, the liberal General Secretary of the TUC fought against Keir Hardie and lost . What we've suffered from in the last thirty years is non-political trade


31

unionism . Insofar as trade unionism becomes politicised, then it assumes a role outside wage militancy within the four walls of its factory . Look at the People's March for Jobs, the activities on behalf of the pensioners by the Transport and General Workers Union and others, and the role of the trade union movement in helping to shape the political policy of the Labour party . They take it well beyond that narrow function of helping to make capitalism work, which is the idea inherent in your question . GF :

On the TUC Jobs Express campaign, do you really think that it's going far enough to fight youth unemployment? Do you really think it's making a dent in government policies? Don't you think that the Brixton and Toxteth riots did a lot more?

Benn :

Margaret Simey, the chairman of the Police Committee in Liverpool, had the courage to say that it would be irresponsible not to riot in those circumstances . I thought that was an exceptionally courageous statement to make. Scarman's inquiry whatever its solutions, at least relates the problem to the problems of social and economic conditions . I think the People's March for Jobs was one of the most effective political campaigns there's been this year because it took up the fight of the UCS workers, or the Lee Jeans workers, or the Grunwick workers on to a much wider scale . It rolled like a huge mass meeting or a daily newspaper right through England and Wales, and it put unemployment on the top of the agenda . If you look at the polls - not that I believe them because they're largely manipulative - you'll see now that unemployment is the dominant question . The Labour party is about jobs and always has been, whereas inflation is a right wing issue, so I think there is a very substantial change of opinion taking place . Of course unemployment frightens people, and politically has the effect of driving them to the Right . That's why the SDP has appeared, because it is a hard right wing party-Conservatism with a human face - and it is cashing in on the fear generated by unemployment . So, you have to be realistic in the nature of the struggle at any one period . The Jobs Express is a way of getting through to people, though whether it will be as historic in its impact as the People's March for Jobs I don't know .

GF :

On workers coops, finally, I notice they are being supported by right wing Labourites, many now in the SDP, who've talked about socialism without the state, and even by Tories who see them as excellent examples of popular private enterprise . How do you differ?

Benn :

It is interesting that so many of the points you put about institutions come back to what is the purpose behind them . The purpose I had was to provide life after death for capitalist enterprises that had collapsed . They came along to see me - Jack Spriggs and Dick Jenkinson of KME in Kirby - and they gave a classic presentation of what you would call the corporate relationship between the bourgeoisie and the proletariat . They said, `Will you give money to this firm?' ,

32

CAPITAL & CLASS and I said, `No, I won't' . `Well, our jobs are at stake', they said, and I said, Ì know they are . I'll give money to you, but I won't give money to the firm' . So the firm collapsed and then the money went in to establish life after death for the people concerned . The Establishment fought like tigers against that . Why? Because the ultimate discipline of an employer is to sack an individual or collectively close a firm . If there is a life after the death sentence of capitalism on workers, then that destroys at a stroke the discipline of capitalism throughout society . I tried to get them established . There were very unfavourable circumstances at Meriden and the Scottish Daily News . They were denied adequate resources, they had all sorts of working difficulties . Even the British Steel Corporation would only do cash trading with KME although it was a nationalised industry, and the Co-operative movement didn't take much of an interest at the time . So that is one way of looking at it . It is common ownership of a non-nationalised kind ; I think that there are a whole range of expressions of socialism the coops at one end, the municipal enterprise, the London Enterprise Board, the National Enterprise Board, nationalisation and so on - a whole range of instruments. Now look at it from a Tory point of view . They were very clever and they began to see that if workers wouldn't accept the control of management in a particular factory, management could be withdrawn from that factory and the workers could be confronted with market forces on their own . Then they would tear up their rulebook, break their links with their national trade unions, and be forced to discipline themselves in order to survive . Capital could thus withdraw from a managing function into a banking function . I think that there is no doubt that a lot of the Right see the workers cooperative as a way of throwing working people into the battleline . If they can cut living standards and throw out their rulebooks to the point where they succeed, they'll be founded . There'll be an undeveloped area - like Taiwan, Singapore or South Africa - where the unions have been destroyed, the wages are low, and they will then be prepared to fund it as long as it's profitable . It just depends on what attitude you're prepared to take towards it . If you're prepared to accept that, which I'm certainly not, then of course you could dismantle piecemeal the trade union movement . If you take the other view, then you're finding a way of replacing a capitalist ethic and a capitalist society on an ad hoc basis through a whole range of enterprises which would be wholly different in their character . Every question you've put, funnily enough, import controls, nationalisation, the NEB, thus, runs into the same problem . They're all just instruments . The question is what are they for, who do they serve? That is the crucial question .

GF :

I think you have a very different view of worker coops than the Tories . What worker coops do is to show that workers can run an industry without the capitalists, but it's not a question of who organises the method of exploitation, but of striking at the harsh logic of


33

capitalist production which will prevent them succeeding . Under socialism I am sure there will be worker coops, but we're talking about capitalism . Benn :

Not necessarily . Take a very simple case : suppose there is a need for hearing aids in the health service and these are being imported on a large scale, just for the sake of argument . Why don't you employ unemployed people into empty factories to produce hearing aids just to meet a public need . I mean, these are very simple questions that people understand . If you go to Liverpool, to Clydeside, to the North East, to South Wales, there are needs, there are people, and there are idle productive facilities . Why can't you organise these in such a way as to meet the need? The idea that it has to be within the framework of a capitalist economy with a capitalist ethic and all that goes with it, is to dodge the central question of socialism, which is how you move to production for need away from production solely for profit . After all, in the 1930s we got out of unemployment by massive public spending- it happened to be on weapons . The challenge to us is how to get out of mass unemployment by public expenditure that happens to be an expansion of the social services . But it's still public expenditure, and it's still a state-created market, or a public service created market . Such a market is capable of creating demand for goods that can be produced in the context of a workers cooperative . That's why the Lucas aerospace people came to me - I think I am in a sense the Godfather of their corporate plan - they said, `We think we're all going to lose our jobs . What can we do?' I said, `Well, why don't you go away to create your own corporate plan? You've got your own skilled people,'- I think you're right, people can run their own affairs - `You've got a lot of equipment and there are a lot of needs that aren't being met,' and they went away, put the three together and produced their plan . Now, I don't think it follows that workers cooperatives are bound to fail or bound to be wrong because it's in a society where the forces of the market are still very powerful . Firstly, if you say you can't have any little islands of socialism in a sea of capitalism then you're waiting for the millenium, which will never come ; secondly, because all the great gains made by the labour movement either by industrial struggle or by political representation have been to take growing areas of our national life and insulate them by institutions from the ravages of market forces, creating havens where decent human values can prevail . That is the way I see it . I'm not making too great a claim for it, but I think that some claim can be legitimately be made to call that socialist . CRC 17 - C

On the Obsolescence of the Marxian Theory of Value : A Critical Review Michel de Vroey Until recently, to assert at the same time adhesion to the Marxian paradigm and rejection of the labour theory of value would have been considered blasphemy . A pathbreaking iconoclast in this respect was Joan Robinson, although she did not really speak from within Marxism . For her, value was a blatantly metaphysical concept with no operational content . `No point of substance in Marx's argument depends upon the labour theory of value . Voltaire remarked that it is possible to kill a flock of sheep by witchcraft if you give them plenty of arsenic at the same time . The sheep, in this figure, may well stand for the complacent apologists of capitalism ; Marx's penetrating insight and bitter hatred of oppression supply the arsenic, while the labour theory of value provides the incantations' (1966 :22) . Nowadays this view is gaining strength and is defended by many of the brightest young left economists . Sign of success, they have their own label : Sraffian Marxists . This review article is concerned with a new publication within this tendency : Lippi's Value and Naturalism . It could well join Steedman's Marx after Sraffa as a seminal piece in the assault on the Marxian theory of value, from within Marxism . Lippi's thesis is exactly the same as Robinson's : the labour theory of value is both untenable and unnecessary, and should thus be abandoned . Taken separately Lippi's arguments are not really new . Nevertheless, his book gives an impression of strength and conviction, which I would attribute to the author's single-mindedness . All his arguments centre around one objective : to demonstrate the obsolescence of the Marxian theory of value . The result is a well-argued and challenging plea . Undoubtedly, Lippi feels that he has advanced unanswerable arguments which conclude the debate . For him, only 'obscurantists' can still defend this theory . . . Although I do not share his thesis, I consider his book an interesting and solidly constructed work . In discussion of it, I will first expound Lippi's views in more detail and then present my criticisms . To this end, I shall discuss first the

MARXIAN VALUE THEORY

35

premises of Lippi's analysis and, second, those points in Marxian value theory which are in his eyes, inconsistent : namely the transformation problem and the relationship between value and unproductive labour . According to Lippi, the Marxian theory of value is epitomized in the following, more or less equivalent, propositions : value is nothing but labour ; labour is the only source of value ; labour is the only real social cost . This definition of value as embodied labour is called the law of value : `The content of the law : namely the measurement of products by the quantity of labour required to produce them' (Lippi 1980 : 131) . According to Lippi, these principles stem from a source which is best expressed in Marx's well known letter to Kugelmann . There, he holds, Marx derives the identification between value and embodied labour from a universal principle, which transcends capitalism and logically precedes the specific theory of commodity exchange . The foundation of value in the latter is just an application of the general principle . In Lippi's terms : `Labour as a measure of difficulties that must be overcome, as real social costs, is the "immanent measure" of the product, whatever the historical mode of production ( . . . ) . Value is merely the form assumed by real cost when the objects in question are commodities, products to be exchanged' (1980 : XVI) . Marx's scientific project consists then in demonstrating that labour is the sole source of value . Such a task was felt necessary since prices do not, in fact, mirror value directly . On the contrary, evidence suggests the opposite . To defend the law of value, it therefore becomes indispensable to indicate precisely how actual exchange-ratios can be reduced to labour. The attempt to drive a particular law (in a commodity system, value is the sole real cost) from a universal law (whatever the mode of production, labour is the sole real cost) is what Lippi calls `naturalism', a term which has a definite pejorative connotation . For him, this derivation is nothing but a pre-analytical observation . But, although condemnation of Marx's naturalism is a recurrent theme, Lippi does not analyse the notion in depth . Rather he attacks a more limited point, namely the possibility of operating this reduction from labour to actual exchange-ratios . A crucial assumption here is what can be called the `conservation assumption' : the sum total of embodied labour as well as that of surplus-value does not change during the redistribution which the reduction implies . `Behind the facades of prices, Marx held, labour is the only real cost ; even more important, profit is nothing but the superficial manifestation of surplus-value, and therefore of surplus labour . In other words, the aim of Marx's approach is to reduce to embodied labour various magnitudes that are generally not proportional to quantities of embodied labour . This reduction cannot be arbitrary, but must be consistent with the distinction between the production of value and surplus-value and a (logically) subsequent redistribution of surplus-value among capitalists and between capitalists and landowners . But there is only one legitimate way to make the distinction between the production and distribution of value and surplus-value : it must be argued that prices can be derived from values by the means of the transfer from some commodities to others of part of the labour expended in total production . The conser-

36

CAPITAL & CLASS

vation of total quantities of labour expended, far from being an expedient of minor importance (as many have tended to believe) occupies a central role in Marx's theoretical construction' (1980 : XVIII) . If it can be shown that the conservation assumption is untenable, the theory of value collapses . According to Lippi, this is precisely what happens . He detects at least two inconsistencies . The first concerns Marx's analysis of unproductive labour, and the second the transformation of values into prices of production . I shall consider them in turn . In the Marxian conception, the consideration of unproductive labour' involves a departure from appearances . In concrete capitalist practice, costs of production are calculated by adding circulation costs and strictly productive costs, both being put on the same footing . But this equality of status is illusory and misleading . In the `deep reality', behind the surface of appearances, circulation labour should be subtracted from, rather than added to, value-producing labour. Since it does not add any supplementary use value to the social product, it produces no value either . From this perspective, unproductive labour cannot legitimately be considered a `real cost' . In order to grasp the correct magnitude of the latter, productive and unproductive labour must be distinguished . This also indicates the necessary intertwining of the theory of value and of the distinction between productive and unproductive labour, a connection which is rather neglected in Marxian literature . But as Lippi points out, à model of Marx's theory of value is inherent in his treatment of circulation cost' (p .6) . The integration of unproductive labour into the theoretical framework produces a divergence between the formation of prices and the formation of values, for the former include the circulation costs while the latter exclude them . The global theory can however be maintained, providing the discrepancies between prices and values are compensated by transfers of value or, in other words, the circulation costs are financed by a deduction from the surplus-value extracted from the productive labourers . The amount of surplusvalue then remains unchanged but its distribution alters, since the unproductive branches get a share of it, although they do not contribute to its creation . The divergence between values and prices can thus be explained by assuming that if commercial capitalists, who supposedly direct only unproductive labour, can sell a commodity at its value, it is because they bought it at a price lower than its value . If this is accepted, the shift from the sphere of appearances to that of deep reality does not undermine the law of value . Prices can still be reconstructed on the basis of value . The only difference which considering unproductive labour creates is that the chain of mediations between the surface and the real determination becomes longer . This is the traditional Marxist way of resolving the question . But Lippi has at least two criticisms, either of which alone would be


37

sufficient to disqualify the traditional view . The first is advanced in passing when discussing Colletti's views on abstract labour . It is contained in two far-reaching sentences : `The labour of those employed in the distribution of commodity is no less abstract than that of workers who produce in the material sense . And yet Marx holds that their labour does not produce value, since it is not "intrinsically productive" .' (1980 : 36) But Lippi gives more weight to a second criticism . It consists in joining the analysis of unproductive labour with that of prices of production . This is legitimate because the same mechanism for transfer of value is supposedly involved in the two problems . An unproductive branch is analogous to one which is fully automated . They share the same feature of creating no value, and thus no surplus-value, while nevertheless getting the average rate of profit for the economy . If one leaves aside the first argument, about abstract labour, the two inconsistencies - the integration of unproductive labour and the transformation of values into prices of production are thus reduced to the same basis . The integration of unproductive labour depends upon the possibility of validly operating the .transformation of values into prices of production, a question to which I now turn . Lippi's analysis here is very traditional and remains in the mainstream of literature on the subject . He is not interested in mathematical subtleties . One point alone absorbs his attention : is it possible to operate a transformation from values to prices of production, while salvaging the conservation assumption? This would imply that aggregate magnitudes are not altered in the redistribution of value and surplus-value . Thus the sum of prices must equal the sum of values and the sum of profits must equal the sum of surplus-value . Evidently, Marx conceived of these equalities as simultaneously valid, even when he presented them separately . But, in so doing, it is argued, he took for granted what had to be proven! And subsequent debate has challenged the claim to simultaneity . Whatever the method of calculation, be it a system of simultaneous equations or the iterative method, conservation of both value and surplus value arise only in exceptional cases. Once the conservation assumption has been proved untenable, the demolition of the law of value is easy . If one asserts that the quantity of value is conserved during the transformation, profits cannot be considered as the result of a redistribution of the total surplus-value . If the equality between profit and surplus-value is maintained, the claim that the quantity of value is conserved, becomes devoid of meaning . Marx's project is thus in an impasse . Contrary to what he thought possible, prices cannot be reduced to quantities of labour . `No accurate meaning can be attributed to the proposition that prices are somehow a manifestation of values, the result of a "transformation" of the latter' (1980 : 109) `Marx's labour theory of value in any form that ascribes rigorous significance to the identification of value and labour is untenable' (1980 : 110) And consequently, the solution for the integration of unproductive

38

CAPITAL & CLASS

labour also becomes invalid . `The profit that accrues to the commercial sector and the recovery of capital advanced for pure circulation costs cannot be strictly considered deductions from the surplus-value produced in the industrial sector' (1980 : 62) . So much for the critical aspect of Lippi's examination . He also aims to draw positive conclusions from his rejection of value . Two lines of argument, which again are not really new, are developed here . On the one hand, he argues that the Sraffian procedure allows calculation of the magnitudes of prices of production and of the rate of profit, without any reference to value . One can skip the value calculations and reach the same results . All we need to know are the production methods, ie the amount of commodities used in production and produced, whichever way they are measured, and the size of wages, expressed in terms of whatever commodity . On the other hand, Lippi reflects upon the function of the law of value . By this he means the objective or the reason why Marx made value and embodied labour identical . This is a crucial question, he holds, to which little attention has been paid by Marxists . The lacuna is unfortunate, he feels, because once this function has been clearly identified, it can be seen that the same objective is attainable without the law of value . Lippi's opinion on this function has definite Robinsonian overtones . For him, if Marx wants `to demolish any notion that there is an atonomous source of value other than labour', it is in order to criticize the Smithian view, according to which capital is a source of value . This view offered a justification for profit, instead of considering it the expression of exploitation . Thus the interest for Marx in positing labour as the sole real cost, lies in what it denies - the refutation of any apology for profit - rather than in what it asserts . Now, if the same result can be reached in other ways, so much the better, since Marx's assertion is untenable! Again, the Sraffian framework provides the alternative solution . Here profit is seen as a subtraction from wages, the magnitude of which is determined once the exchange between labour-power and capital has taken place . In this way, the rate of profit can be calculated without recourse to any concept extraneous to the logic of exchange : `This has a meaning different from the theory that profit "originates" from surplus-value . It is no longer a matter of analyzing production in terms of embodied labour, from which it follows that surplus-value is the material pre-condition for profit . Rather the origin of profit lies in a social relationship : the reduction of labour-power to a commodity and the manner in which its price is socially determined makes it possible for surplus labour to appear in commodity production .' (1980: 101) Lippi admits that Marx's view of value as the real social cost contains a rational kernel, which must be maintained : `denial that capital is a source of value in any sense and determination of profit as a subtraction from wages' (p .95) . But this correct kernel must be disentangled from the naturalistic element . The idea that labour is the source of value must be abandoned . Not, however, in the name of another theory of value . No alternative answer to this question must be


39

attempted . It is the question itself which must be abandoned . Lippi holds that one can retain two of Marx's main results, namely the discovery that surplus labour is concealed behind profits and that prices of production are equilibrium exchange-ratios, but on one condition : they must be taken individually . For they cannot be demonstrated simultaneously . . . their unity on the basis of the labour theory of value must be surrendered (which overturns the theory that profit is redistributed surplus-value) . ( . . .) First the assertion that so long as there are profits, however determined, ( . . .) there must be surplus-value is completely independent of the theory of value and prices . It arises strictly from the analysis based on embodied labour and from the simple observation that profits represent purchasing power over portions of total output . Second, if the contention that capital advances are the source of profit is directly assaulted on the field of prices of production, Sraffa's analysis can resolve all the difficulties . The possibility that there may be some source of value other than labour is ruled out by extirpating the problem of the `source' of value itself . The analysis of prices of production disposes of the idea that labour is the `wellspring' of value, while the valid concept this idea has generated - that profits are subtractions from wages - is maintained' (p .90). Lippi's basic premise : the unity of Marxian value theory

At first sight Lippi's target is clearly identified : the Marxian theory of value . Thus, he implicitly assumes that such a unique theory exists, a position which, certainly is widely held . I would however question it and argue that two distinct versions of this theory are available, each of which claims to be true to Marx . They can be called the Ricardian or embodied-labour interpretation and the post-Ricardian or abstractlabour interpretation . The classical exposition of the first version is Meek's Studies in the Labour Theory of Value, while the second is contained in Rubin's Essays on Marx's Theory of Value .' Both interpretations derive from Ricardo's conception of value . Thus they undoubtedly belong to the same family, as opposed to the other family, the Smithian one, in which a `factors of production' theory of value is held . Nevertheless, in my opinion, they involve enough important specificities to be considered rival theories . Before sketching the differences between them, I must say that I defend the second one against the first . This first interpretation is developed from what I call a technological paradigm . Value is linked to the difficulty of production . The object of the theory is the economy seen as a system of production . But the boundaries of this object are not clearly delineated . On the one hand, it seems to refer to the capitalist system since there is an explicit reference to the capitalist categories of profit and of wages . On the other hand, no reference is made to the notion of commodity, as the particular social form in which the social labour force is allocated in a decentralized economy . The commodity form, as the other basic component of the capitalist mode of production, besides the wage relationship, is thus entirely neglected . Whilst several differences between Marx and Ricardo are recognised in the embodied-labour interpretation, they do not really concern the content of the theory of value . The two elements on which, in the other version, the differentiation between Marx and Ricardo is constructed are in fact erased .

40

CAPITAL & CLASS On the one hand, the reference to the form of value is emptied of any distinctive content . The theory of value is constructed without any consideration of circulation or money . On the other hand, the notion of substance of value also receives a minimal meaning . When reference is made to abstract labour, the latter notion means labour in general, ie in abstraction from the different specific types of labour activities . It does not receive the stronger meaning, where it refers to the social form in which the labour force is allocated . This explains why the embodied-labour interpretation has universalistic overtones . The abstract-labour version is characterized by a shift, from a technological to a social paradigm .' One of its basic premises consists in arguing the necessity for a connection between the physicaltechnical dimension and the social dimension of economic activities . The commodity is at the same time a physical product, be it a good or a service, and a social relationship . The first aspect always supports the second one, but it is the latter which plays the leading role in the dynamics of society . In this interpretation, the relationship between production and circulation becomes central . Money is indispensable : without it, the theory of value cannot stand up . Here the notion of value refers to a social property of commodities : rather than being linked to a mere embodiment of labour - a technical process - value refers to the validation of private labour through the exchange of commodities against money . A new concept - private labour - is introduced, which is given a central role . It designates the specific way in which in a decentralized economy, characterized by the absence of any a priori rule of economic cohesion, social labour is allocated among specific production tasks . It begins with the private initiatives taken by owners of the means of production . Their decisions have to anticipate the needs of the reproduction of society . But private labour becomes validated (ie reckoned as a fraction of social labour, serving effectively this reproduction) only in so far as its product is sold . Otherwise, private labour is a waste and the capitalist decisionsmakers must, as it were, purchase their unsold products themselves . Thus the socialization of labour occurs through a `somersault', the sale on the market, by which private labour becomes transformed into social labour . In this perspective, the theory of value cannot be considered a production theory, since in the absence of sale no creation of value occurs . On the other hand, however, it is not a circulation theory because, once the sale takes place, the magnitude of value depends on the average conditions of production, prevailing at the precise moment of exchange . Thus exchange creates value, but production determines its magnitude . Likewise, the possibility for the transfer of value from the means of production to the final commodity is conditioned by the effective sale of the final commodity . In such a perspective, the scope of the theory of value is both narrower and broader . It is narrower because it does not aim at general applicability to any system of production . But it is also broader, because it does not limit itself to the determination of equilibrium exchange-ratios . First and foremost, it aims to explain the specific functioning of a decentralized economy in which no a priori defined social cohesion is conceivable . The theory of value


41

must be able to determine theoretically the equilibrium exchangemagnitudes, but primarily in order to answer the challenges to its capacity to do so, rather than to explain the reality . In fact, equilibrium exchanges do not form an essential part of the theoretical structure of Capital. The capitalist system develops in a permanent disequilibrium . The achievement of instantaneous norms, the definition of which is the object of the value-founded theory of price, is permanently impeded by the working of a diachronic logic which irreversibly modifies these norms ." The abstract-labour version has not yet received the attention which, in my view, it deserves . Marxists have usually contented themselves with the other version, which corresponds more to common-sense thinking and is easier to expound . Only in recent years has it re-emerged as a result of the re-reading of Marx and of the assault directed on the traditional version . For the time being however, the abstract-labour interpretation cannot be considered a fully constructed theory . It remains at an intuitive level and its coherence is not yet well established . Two factors account for this state of affairs . First, the authors who could be ranked under this banner do not agree among themselves, even on the definition of basic concepts . Second, the content of the views defended changes radically in a short space of time . The French situation is typical here . Those authors who initiated the critical revision of Marx and the new interpretation, like Benetti (1974, 1980), Cartelier (1976, 1980), Fradin (1973), Deleplace (1979), have now changed their minds and advocate dropping all reference to value! Thus a split is occurring within the social paradigm, which parallels the rupture within the technological paradigm between traditional Marxists and Sraffians .' The difference between the rival theories (the abstract-labour theory and what I will call the Benetti-Cartelier theory) can be summarized as follows . For the former, the analysis of the decentralized economy must start with the notion of the commodity, seen as a connection between physical and social aspects . Value is introduced as an invisible property of commodities which permits their comparison : commodities can be exchanged because they are the products of abstract labour . But the abstract labour itself is represented in money (from which derives the necessity of the latter as the unique means of operationalising the abstract labour criterion)' . The Benetti-Cartelier theory rejects the idea that the commodity is the nucleus . It retains only the social aspect, arguing that economic discourse can say nothing about the physical aspect . The shift is thus from a viewpoint which associates the two aspects, to one which takes only the latter into consideration . The nucleus role is now played by money, defined as the only social relationship which in a decentralized system is immediately social (a point which the first school would accept) . But money is no longer related to abstract labour' What light do these considerations throw on the discussion of Lippi's views? They lead to an enlargement of the debate . Rather

42

CAPITAL & CLASS than two opposing conceptions- the Marxian view against the Sraf lan - four are present : the traditional embodied-labour theory, the abstract-labour theory, the Sraffian theory and the Benetti-Cartelier theory . They can be ranked according to two criteria : the basic viewpoint which they hold and the existence or not of a reference to value . The first of these criteria is the most encompassing . The four theories can thus be regrouped into two intellectual families, of which they are sub-branches : the technological paradigm and the social paradigm .'

Basic viewpoint

Technological

Social

reference to value

yes no

embodied-labour theory abstract-labour theory Sraffian theory

Benetti-Cartelier theory

Several levels of debates are then possible, opposing either the two basic paradigms or the different positions within each . What interests me, of course, is the response of the social paradigm to the SteedmanLippi position, rather than that of the embodied labour theory of value .' Here again two levels of discussion can be distinguished . On the one hand, there are mutual attacks on the logical coherence of the other theory . A major part of Lippi's book addresses this ; conversely, some Marxists attack the coherence of the Sraffian framework . 10 On the other hand, a more global discussion can be broached bearing on the respective qualities and defects of the theories' epistemological foundations . Lippi also deals with this matter, especially in his analysis of naturalism . I will limit myself to this global level and make two remarks . First, I regret Lippi's lack of awareness or acceptance of the opposition between the two versions of the Marxian theory of value and, more globally, between the two paradigms . Although he touches incidentally on some of the points stressed by the abstract-labour version, he considers them only minor facets of the same theory rather than indications of a break from the embodied-labour version . Consequently, he misses the essential part of the debate on value, dealing with the opposition between the two basic viewpoints, which should be a pre-requisite for the consideration of all other questions . This is for me his main defect . Because of this omission, the shift which he proposes, from the embodied-labour theory of value to the Sraffian theory of prices of production, appears to me simply a `palace revolution' . These theories are just two variants within the same technical viewpoint, which I consider globally inappropriate .


The concept of naturalism

43

My second remark concerns the concept of naturalism, about which Lippi seems to be very enthusiastic . First, I will criticize Lippi's use of the notion and, second, I will argue that taken in another, more appropriate, sense the accusation of naturalism could be boomeranged back onto the technological paradigm . For Lippi, the defect of naturalism lies in its derivation of a particular law, the law of value, from a universal principal . But is there really such a derivation? I see two problems in Lippi's thesis . First, he seems to confuse two levels at which the universal principle can possibly be understood . The first is the essentially trivial idea that each society must necessarily allocate its social labour force among several type of activities . The second and more substantive one refers to the different idea that this requirement universally proceeds through the measurement of the labour embodied in products . In his book Lippi sometimes confuses these two levels . Having already been accused of this after the publication of his book in Italian, he takes the matter up again in his post-script to the English edition . Here he asserts that the general law is such only in a very special sense : Ìt is not that all modes of production actually conform to the law ; rather it is the central characteristic of the society towards which the historical process that embodied these modes of production is evolving' (129) . `The general law, ( . . .), must be drawn from a phase of this process subsequent to all others and in this sense the most general of all . This phase is precisely the consciously organized production of co-operative society' (130) . Lippi is thus led to argue the not very convincing thesis that all the analysis of Capital is developed as the counterpart to the hypothetical cooperative society . Furthermore one has the impression that the only reason for making this rather complicated twist is to maintain, in one way or another, the general character of the law, at its second level of understanding, and hence the possibility for the accusation of naturalism . My second problem with Lippi's argument, leaving aside the misleading use of the notion of law in both cases," concerns the order of derivation . If there is a derivation, would it not be the other way round, namely the derivation of the general principle from what is at work within capitalism? Production in general is an abstraction, built up from the consideration of the specific capitalistic form in which the production and the allocation of the social labour force occurs . Thus if one should speak of a derivation, it would be that of the general principle, as inferred from the examination of its concrete form of manifestation . On the other hand, while I feel reluctant about Lippi's use of the concept, I believe that it could be applied with another meaning and for another purpose, namely in order to criticize the technological paradigm! For me the defect of both Sraffians and traditional Marxists consists in the development of a theoretical framework in which only one social relationship is introduced, namely the wage-relationship . For the rest, they see capitalism as a production matrix, thus neglecting

44

CAPITAL & CLASS the commodity as the social form in which labour is predominantly performed in the capitalist system . In other words, in the Sraffian view, the economy is examined only from a substantive angle, bearing on the types of activities, the method of production, and the concrete goods produced . But this viewpoint misses the social form in which these activities are embedded . For example, two economies could have exactly the same production structure from a technical viewpoint and their activities could thus be represented by the same matrix of production . But they may differ radically in the way in which social labour is initiated and sanctioned . In one case it may be a commodity system ; in the other a centralized system . The Sraffian framework cannot grasp this difference because it does not distinguish between the commodity and an economic good in general . This exclusive focus on the physical dimension of production, at the expense of its social dimension, can be labelled a naturalistic deformation of the social reality of capitalism . And so the accusation of naturalism can be sent back to Lippi! Lippi has two main arguments against the theory of value : its naturalism and its inconsistencies . My feeling however, is that this rejection is more deeply rooted. Even if these arguments were dismissed, the 'Sraffians' would stick to their idea that value is unnecessary ; they would find new arguments . And the `Marxists' would do the same the other way round . . . My opinion, which will be variously characterised as disillusionment or as realism, is that such matters can never be finally settled, when they hang on the question of fundamental premises . If proving the validity of a theory implies forcing opponents to accept the superiority of the new theory, then such matters are not open to proof. It may be possible to force change within a given paradigm - which would explain the fact that those dissatisfied with the traditional labour theory of value have shifted to the Sraffian rather than the abstract-labour version . Similarly, if those who initially defended the abstract-labour version were to drop it, it would be in favour of a Benetti-Catelier theory, rather than the Sraffian . Discussions about premises make me think of lawyers pleading before a strange court, in which no judge sits, but only co-opted colleagues ; no deadline exists to bring the mutual pleas to a close, and no sentence is ever given ." Let me now turn to the examination of the two points which Lippi considers inconsistent : the transformation problem and the distinction between productive and unproductive labour .

The Lippi argues rightly that no mathematical sophistication can rescue transformation the transformation problem . For me the salvage would come rather problem from an epistemological re-examination, questioning the way in which Marx posed the problem, a way which has been adopted ever since, by opponents and defenders alike . As I will try to demonstrate, such an examination brings to the fore the fact that the two questions, whose simultaneous realization constitutes the Achilles' heel of value theory, have not the same status, contrary to what Marx explicitly argued . The demand for equality between the mass of profits and the mass of surplus-value can be abandoned without damage to the


45

logical coherence of the theory of value . Of course, as soon as this idea is accepted, no mathematical problem exists . Let us thus examine the two relationships in turn . The first equality, which concerns the sums of prices and of values, is a premise of the analysis and in no way a result . It springs from the manner in which values and prices are theoretically interconnected, a point which is often misunderstood . In particular, it is rarely recognised that the two concepts are intrinsically linked because they refer to the same social process, i .e . a validation of private labour . The creation of value, the determination of the market price and the formation of the seller's income cannot but occur at one and the same time . They are difference facets of the same reality . The concepts of value and of price can be separated only in intellectual reasoning . Value expresses itself only in the form of a price and this expression requires the autonomous existence of money as the representation of abstract labour . To speak of a value existing in itself, independently of its form, makes no sense at all . What are the quantitative implications of this? Let us suppose a pure commodity system, in which natural resources are left aside and in which all labour takes the abstract labour form . Assume further that the velocity of circulation of money is equal to one, which is necessarily true if the cycle of production and exchange is reduced to a single instant . Then, the amount of money in circulation is necessarily identical to the total amount of sales or incomes, itself identical to the sum of prices . Furthermore, there is then a necessary èquality' between the sum total of prices and that of values . For, in such a pure system, no income can be formed, except by a creation or transfer of value . The total income or the sum total of prices is the monetary expression of the total magnitude of value . The division of this income between the different economic agents expresses their claims upon the social product . This correspondence between values and prices is not a result, open to disproof . Rather it is a direct consequence of the premise of the analysis, namely that the only basis for obtaining an income is a creation and transfer of value . Thus following Bullock and Yaffe, one can assert that : ìt is quite impossible for total prices to express anything other than total value' (1975 : 14) The meaning of such an equality should not however be misunderstood . The concepts of value and of prices belong to different theoretical spaces . Mathematical operations mixing them up in the same equations make no sense . Unfortunately, neither Marx nor his followers respected this rule . Only an overall quantitative link can be brought in between values and prices, through the concept of the monetary expression of social labour time (abbreviated to ME) . There is a pure number indicating how many monetary units the quantum of total value is equivalent to . Empirically, the evolution of the ME is reflected by that of the general level of prices (GLP) . Behind any increase in the latter, there is necessarily one in the former . However an increase in the ME does not necessarily manifest itself through a similar move in the general level of prices, because the latter is also inversely

46

CAPITAL & CLASS related to the general evolution of productivity . This is why the two concepts should not be confused ." No general explanation can be provided here for the magnitude of the ME and its evolution . Everything depends on the specific form taken by the general equivalent and the institutional context of the creation of money . 11 Thus, in this pure system, the sum of prices can change only in two ways : either through a change in the total magnitude of value or through one in the size of the ME . Thus the correct expression of the relationship between values and prices is not : sum of prices = sum of values, but sum of prices = Me .sum of values . In the Marxian literature, this notion is rarely mentioned . Is In fact Marx and his followers implicitly and arbitrarily assumed that the ME is equal to one, so that the same figures could be applied to values and to prices . On the one hand, this undoubtedly facilitates the construction of numerical examples illustrating the theory, since an easy jump from value categories to price categories is then possible . On the other hand, the assumption can be misleading, since it tends to produce confusion between the two categories . In this light, the transformation of values into prices of production appears a complex process . It is the concatenation of two operations which occur simultaneously, but must be intellectually distinguished : firstly, the transition from the theoretical space of values to the theoretical space of prices and, secondly, the transformation occurring within the latter . 16 The basic assumption behind this is that the sum of prices, expressing the sum of values at a given size of the ME, logically pre-exists the determination of the particular prices . The latter flows from the allocation of the sum total of prices among different commodities . The first operation occurs immediately at the moment of exchange . Then the two theoretical spaces are formed simultaneously, one at a visible level and the other at an invisible one . This transformation from values into prices as a generic category cannot be affected by any problems in realization . For either a value is created and immediately takes the form of a price and of an income, or the planned creation of value fails, in which case no income emerges and ex post the supply price appears to be a dead-ended tender . In other words, when private labour is not transformed into abstract labour, neither a value nor an income arises . Value is always, and by definition, transformed into a price . Thus if there is a problem about the transformation of values into prices of production, it must concern the second operation, ie the allocative changes within the space of prices . The question to be answered here is the following one : under what conditions would the division within the space of prices, indicating the effective exchange-ratios among the commodities, exactly express the division within the space of values? Or, in other words, under what conditions would there be a numerical equality between the market price of a commodity and its value, weighted by the size of the ME? Three conditions would have to be fulfilled : (1) equality of the value-compositions among the branches ; (2) equality of the amounts


47

demanded and supplied at the supply price, while the latter is identical to the equilibrium price ; (3) absence of any monopoly power. If such a situation were verified for all commodities, the division within the space of prices would be exactly similar to that within the space of values . The norm of allocation of the sum total of prices can then be described as consisting of the coincidence of the market price with the `direct or simple price"', which is equal to the value weighted by the ME . The indication of the achievement of this norm is the equal distribution of the mass of profit among the branches . The transformation of the simple price into another form of price arises once it is admitted that these conditions are unacceptable assumptions . However this relaxation has different implications for each of the three conditions . The relaxing of the first one entails a change in the content of the norm of equilibrium, while the relaxing of either of the other two constitutes not a change of the norm but a departure from the equilibrium situation . The following points must be stressed . The transformation from simple prices to prices of production is only one of the transformations within the space of prices through which the determination of price is established . One can also speak of a transformation from the price of production to the market price . But the theoretical impact is different : while the latter concerns the transition from an equilibrium situation to one of disequilibrium, the former refers to the transition from one definition of equailibrium to another . This transition results from the abandonment of the assumption of equal value-compositions, an assumption which is made for pedagogical purposes, but is untenable . Thus the definitive norm of equilibrium, as opposed to the provisional statement mentioned earlier, must be formulated as follows : equilibrium is reached when the market price coincides with the price of production . The latter refers to a given fraction of the sum total of prices, which deviates precisely from the simple price to the extent required to ensure the quality of the rates of profit among branches . 18 As in the provisional formula, the latter equality plays the role of indicating that the norm has been achieved . It must also be noticed that the chain between the different processes of transformation is only an analytical reconstruction . They all occur simultaneously, concomitant on a given creation and transfer of value . In other words, the price determination does not occur step-wise, the simple price being first determined, then the price of production, and only subsequently the market price . . . . In reality there are only two moves : first the definition of a supply price, a claim for a certain income by the sellers, and second the formation of a market price, which actualizes this claim, either at the initial level or at another one . In an equilibrium situation, which is the case assumed in the discussion focussing on the transformation from values to prices of production, these two magnitudes (market price and price of production) coincide . Furthermore it is also assumed that the supply price coincides with the equilibrium price . When one contrasts a situation in which the space of prices is divided with the simple prices

48

CAPITAL & CLASS as the norm of equilibrium, with one in which this function is played by the prices of production, the former is an intellectual reconstruction in which the same physical exchanges receive another price magnitude . The set of simple prices is like a shadow system . To conclude this point, if one accepts the premise that the creation and transfer of value is the only basis for obtaining an income and if the discussion is confined to defining an equilibrium situation, the sum of values cannot but be conserved in the sum of prices . However the term, conservation, may be misleading, since it has no timedimension . The transformation is not a sequential process . One cannot think of a value existing before its manifestation in a price . So I would rather speak of a necessary co-extensionality between prices, in all their forms, and values . This can be expressed in the following equation, which is necessarily true : Sum of market prices = Sum of prices of production = Sum of simple prices = ME . Sum of values . Let me now consider the relationship between surplus-value, a fraction of the space of values, and profits, a fraction of the space of prices . Profit is the mass of money globally available to the capitalist class, for accumulation and for capitalists' consumption . Marx's claim is that the following equation must necessarily hold true : Sum of profits = ME . Sum of surplus-value . I do not share this view . Unlike the previous equation, this one is not a premise but a result, which holds only under special conditions : namely when the three above mentioned conditions are fulfilled . Once the inequality of value-compositions is admitted, it can no longer be maintained . However an inequality between the sum of profits and the sum of surplus-value is not necessarily due to an inequality of the value compositions . If the latter are supposed to be equal, but if one of the other two assumptions is relaxed, profits and surplus-value will also most probably diverge . Thus, the question of the co-extensionality of the available profit and the profit which expresses the surplus-value, transcends the problem of the transformation of simple prices into prices of production . It should be clarified in the theoretical exposition of the theory of Capital before tackling the transformation problem . For this reason, I will try to explain it precisely in a particular case, where the equality of the value-compositions is assumed but one of the other two assumptions is abandoned .

Inter-class transfers of income

The effect of relaxing the equilibrium assumption is that circulation profits and losses emerge . These consist of transfers of income from some agents, in a weak market position, to others, who benefit from a strong position . At the global level, this transfer is cancelled because the circulation profits of the ones are by definition the losses of the others . Their algebraic sum amounts to zero . These transfers do not affect the sizes of the two spaces, values and prices, to the extent that the disequilibria do not lead to the lack of sale of some commodities and thus to an absence of creation of value . In the latter case, both spaces diminish in the same proportion . However, these transfers


49

always generate changes in the internal division of the space of prices, with actual exchange-ratios departing from the equilibrium ones . To understand how these transfers can affect the co-extensionality between available profits and the surplus-value, one has to consider the types of transactions involved . The global set of transactions can be divided into two categories : one comprising the exchanges among capitalists ; the other those occurring between capitalist units and the wageearning class, whether these involve the sale of labour power or or the purchase of commodities by wage-earners . If compensation within the subset formed by the exchanges between capital and the labour power is incomplete, an inter-class transfer of income arises and modifies the magnitude of available profits . If the market situation favours the capitalist class, two consequences ensue . On the one hand, the average wage will not allow the consumption norm to be fulfilled and, on the other hand, the total available profit will consist of two components : the profit expressing surplus-value and the interclass profit of circulation to the benefit of the capitalist class . If the market situation is the other way round, then the outcome is also reversed . The consequence of the disequilibrium is that the purchasing power of the total profit as well as of of the total mass of wages will differ from what they would have been if the equilibrium point had been reached . Why was Marx not aware of this? I would suggest the following answer . On the one hand, he wanted to demonstrate that profit was founded on surplus-value in a situation of equilibrium, in order to eliminate the complications arising from the consideration of circulation profits and losses . This is an entirely legitimate procedure . On the other hand, he rightly perceived that at the global level these circulation profits and losses cancelled one another . But his error consisted in not pushing the reflection one step further . The assertion which is valid in an equilibrium situation is no longer so when the existence of disequilibrium is admitted - a theoretical step which must obviously be taken since errors in private decision-making are intrinsic to the commodity system . In such a context, the available profit will most probably differ from the profit expressing surplus-value . Instead of posing that : Sum of available profits = ME . Sum of surplus value, one should write : Sum of available profits = ME .Sum of surplus-value + Sum of interclass transfers of incomes benefitting the capitalist class - Sum of interclass transfers of incomes benefitting the wage-earning class . In other words, surplus-value is no longer the only basis for the mass of profits available for accumulation and capitalists' consumption . If one cannot argue that the equilibrium situation will actually be reached, one can no longer defend Marx's assertion that profits and surplusvalue are co-extensional . Once the discrepancy is accepted at this preliminary level of analysis, it is no longer so tragic to admit that the transformation of simple prices into prices of production also entails a modification of C&C 17 - 0

50

CAPITAL & CLASS the mass (and rate) of profit . One difference must however be stressed . The modification of the mass of profits, occurring when the circulation assumptions are relaxed, makes a real difference to purchasing power . When capitalists ultimately make a profit of circulation at the expense of wage-earners, they can buy more commodities, whether means of production or consumption goods . On the contrary, the transition from simple prices to prices of production changes the nominal amounts but not the purchasing powers . To illustrate this, let me take the numerical example, used by Shaikh (1977) . I assume that department I produces means of production, department II wagecommodities and department III the capitalists' consumption commodities . Table 1 describes the actual equilibrium exchange-ratios when the norm of equilibrium consists in the coincidence between market prices and prices of production . Table 2 describes the exchange-ratios which would have prevailed if the provisional norm was still at work in a system characterized by different valuecompositions .

Table 1 Exchanges at the prices of production Branches Constant capital

Variable capital

Mass of profits

Total income

Rates of profit

I

504

168

168

840

25%

II

224

224

112

560

25%

III

112

168

70

359

25%

Total

840

560

350

1750

Table 2: Exchanges at the simple prices I 450 180 120

750

19,05%

II

200

240

160

600

36,36%

III

100

180

120

400

42,85%

Total

750

600

400

1750

29,63%

Evidently, the striking feature in comparison of the two norms is that, if the equilibrium position had been determined according to the simple price norm, the mass and the rate of profit would have been higher . One cannot, however, leave the matter at this . On closer examination, this effect turns out to be a 'trompe-l'oeil' . Contrary to what happens in a case of disequilibrium, when the market price departs from the equilibrium price, the modification of the equilibrium magnitude from the simple price to the price of production does not entail a change in purchasing power . Let us look at the example . The nominal wage bill decreases (from 600 to 560) but the real wage remains unchanged . Consequently, on a nominal level, the profit


51

available for gross investment and for the capitalists' consumption commodities decreases, (from 400 to 350) with no changes in terms of real consumption . But does this mean that the mass of money available for accumulation increases, as in the case of an inter-class circulation profit to the benefit of the capitalist class? Of course not, because the price of the means of production has increased by that same amount, as a result of the change of norm . Thus, the nominal modification in the mass and rate of profit covers a stability in terms of the two classes' total purchasing powers . The real conditions of accumulation have not changed at all . To conclude this section, my answer to Lippi's first objection to the Marxian theory of value - that the conservation assumption is untenable - can be summarised as follows . Contrary to what Marx said, and to what is still defended by many Marxists, the coherence of value theory does not depend on the simultaneous achievement of the two identities above . The first equation, which I re-formulate as : Sum of prices = ME . Sum of values is true by definition . The second equation : Sum of profits = ME . Sum of surplus-value has a different status . It is open to empirical refutation, and moreover, is unlikely to occur even where there is an equality of valuecompositions between branches of production . If this is accepted, Lippi's objection vanishes and the mathematical resolution of the transformation problem becomes obvious . Finally, let me add that the Ricardians do not have sole responsibility for putting the debate on the wrong track . Marx himself, and also Engels, share this responsibility . When Marx examined the transformation problem, it was as if he had forgotten all he said elsewhere about the form of value . Unproductive Labour

Lippi's main criticism of Marx's treatment of the distinction between productive and unproductive labour is that it contradicts the assumption of the conservation of surplus-value . Since I question the necessity for this assumption, this argument does not seem decisive . However, as I mentioned above, Lippi offers a second criticism : if circulation labour flows from a private initiative, it is no less abstract than value-creating labour . It also takes the form of a private labour which has to be validated by the market . Why then assert that it does not create value? This argument seems to me decisive, especially, of course, if one defends the abstract-labour version of the theory of value . Some revisions are thus needed in order to avoid logical contradictions . The next few pages will be devoted to this task . I must warn that my .starting point is not Marx's writings on the subject . Rather I start from the conception of abstract labour, as I see it, and draw its implications for the definition of unproductive labour, without bothering about whether or not they coincide with Marx's original views . 19 I must also warn that, while Lippi limits his analysis to circulation labour, I will broaden the debate and consider the different possible types of unproductive labour . The problem is one of definition . As Hunt puts it, it rests on the question, productive or unproductive of what? One important point

52

CAPITAL & CLASS is to avoid conflation of theoretical and common-sense meanings . Let us thus examine the possible meanings of the concept of unproductive labour, and ask whether they are compatible with the abstract-labour conception of value? Each of these definitions leads to the exclusion of some specific activities, which may partially overlap . Since the process is one of exclusion of some activities from the sphere of productive labour, the best procedure seems to be first to define what must be excluded, ie the content of the unproductive activities . All the remaining activities can be considered productive labour . These different definitions are summarized in the next table . I examine them in turn . The Possible Definitions of Unproductive Labour Productive/ unproductive of what?

Decisive question

Types of excluded activities

value

what is the social form of the labour activity?

0 domestic labour 0 directly social labour

necessary labour

is the labour activity superfluous with respect to a given technical norm?

0 activities pertaining to capitalist domination 0 prestige activities 0 excess labour of the less efficient firm?

distinct use-value

does the labour activity 0 circulation labour pertain to the functioning of the commodity system? (or does it create a specific use-value?)

surplus-value

twofold criterion : what is the social form of the of the labour activity? (question 1) and : is it exploited labour?

besides the activities described in 1 : 0 labour activities of the independent producers 0 labour activities of the non-exploited labourforce

The first definition Here the criterion on which the distinction is based is the social form in which labour activity is embedded, regardless of its specific content or the nature of the product . Only the social relationship counts . In this perspective, the scope of the concepts of abstract labour and of productive labour overlaps perfectly . Productive labour means productive of value . Unproductive labour is then constructed in a negative


53

manner to designate those labour activities belonging to other social forms, ie either domestic labour or directly social labour . I speak of domestic labour20 when its product is produced and consumed within the nuclear reproduction cell, without a monetary exchange . I speak of directly social labour in a situation in which the labour activity is undertaken as the result of a decision by a central authority, without the need for validation through the market . Its product can be called a collective good or service . Two points can then be stressed . First, in so far as the necessity for other social forms of labour is acknowledged, one cannot assert that value constitutes the sole real cost of society's reproduction . Thus, myself, I would not subscribe to this assertion, which is one of Lippi's preferred targets . Secondly, it must be seen that, if unproductive labour, so defined, is not productive of a commodity and of value, it is nevertheless productive of a specific use value . But the latter does not take the commodity form . The acceptance of this definition opens the way for the criticism of the next two definitions . They are based on a substantive criterion, which examines the content of the activities . Hence they betray the basic premise that the notion of productive and unproductive labour, like that of abstract labour, must refer to a social relationship and not to any ìntrinsic' characteristics of the labour activities . They can thus be accused of `naturalism', in my sense of the term! The second definition Two particular cases of unproductive labour arise in this definition . The first concerns activities specific to a capitalist firm, supposedly respecting the efficiency norm of its branch . The second one concerns a fraction of the total labour performed within a firm, whose efficiency is below the prevailing norm . As will be seen, these two cases rest on the same logical basis. I examine them in turn . In the first case two types of activities could be labelled unproductive : on the one hand, prestige activities, like chauffueurs, hostesses, etc, and, on the other hand (more essentially), the labour of the capitalists or their delegates which concerns the subjection of the workers in the firm . Why could these activities be considered unproductive? Because, from a technological viewpoint, they can be decreed superfluous . If the prestige activities were suppressed, the production of the firm would not decrease . If the class division was abolished and the capitalist system replaced by an associated producers' system, no supervision activities would be necessary . . . Here the notion of unproductive labour clearly means unnecessary labour, defined from a technical viewpoint . It is felt that these activities constitute a waste . Admittedly, if the definition is accepted, there are problems in its concrete application . For, in order to apply the distinction, one must, for example, be able to distinguish those activities which relate to technical functions of coordination, from those demanded by the capitalist function . But theoretically, this

54

CAPITAL & CLASS problem is of secondary importance . I would reject this definition for a more fundamental reason : namely that its acceptance entails a departure from the social paradigm which underlies the abstract-labour conception of value . As is well known, the magnitude of the value of a given commodity depends on the average conditions of production at the moment of exchange . But the notion of conditions of production can be misleading . In fact, it refers to a social practice, which certainly covers a technical aspect but may also encompass activities which, from a normative or technical viewpoint, can be deemed unnecessary . Value refers to a social norm with all the relativism which this notion implies . All the activities of a given firm, which are not in excess with respect to the prevailing social norm of the branch, belong legitimately to the `collective labourer' . This is expressed in the fact that the expenses which they give rise to, can be integrated into the cost of production and into the price of the commodity . 21 Once it is admitted that value is determined from a social viewpoint, the other viewpoints, (normative or technological ones) cannot interfere . This is precisely the mistake of any definition of unproductive labour on the basis of its alleged superfluous character . It compares an existing situation with a hypothetical one, in which the superfluous labour is eliminated . This amounts to a departure from the value conception . For value is not related to a technically ideal norm of production but to the average norm which is in existence at a given moment . The suggested distinction is thus based on a substantive, technological view, a position which must be rejected . Certainly, such distinctions can make sense and be useful for many purposes, but they have no relevance within the theory of value . As a result of this rejection, I defend the view that capitalists (when they are not rentiers but work in their firms) and their delegates, are productive of value, like all other workers . 22 But this does not imply that they are productive of surplus-value (see below the examination of the fourth definition) . The same methodological principle applies to the second possible case of èxcess labour', concerning the firms with a less than average efficiency . Here again, the common-sense understanding of the notion, in which the terms of less efficient and less productive are associated, can lead to a definition of the excess part of labour as unproductive . But again, this view is incompatible with the first definition of the concept, focussing on the social relationship aspect . The notion of value refers to the aggregation of individual efficiency situations, including of course the least as well as the most efficient . 23 In the meaning suggested here, however, the notion of unproductive labour refers to a physical reality rather than to homogenized labour . The third definition Here we fall back again on Lippi's analysis . Backing up the classification of circulation labour as unproductive he is led to assert its unnecessary character . If the social system was different, it is said, these activities could be eliminated . Even if this statement were


55

correct, such a classification could be attacked on the same grounds as the second definition . However I do not think it correct . I believe rather that circulation labour is absolutely necessary . Its object is more general than just the addition of one specific use-value, however basic, to the stock of use-values . It is rather to serve the reproduction of the commodity system . Without circulation products and services, the exchange of commodities would be impossible . Circulation labour can be compared to the Supply Corps in an army, about which it is said in French that it is the `nerve of a war' . Furthermore, these maintenance tasks it seems, will be present in any system of organizing social labour . In a centralized system, they might appear in the form of planning activities . In the hypothetical system of associated producers, to which Lippi refers, some time would again be diverted from `productive' time, in order to ensure coordination . So I do not share the view that circulation labour is unnecessary or could technically be eliminated, although of course, like all other types of labour, it is the object of pressures towards rationalization . However there is another line of thought, also evoked by Lippi, which could lead to the classification of these activities as unproductive . The argument here is that circulation labour cannot be considered as value-creating when it does not create a use-value . But in what sense exactly should this non-creation of use-value be understood? It cannot be that circulation labour produces nothing useful . Otherwise people would not pay for circulation services . The meaning is rather the following one : the allegedly unproductive circulation service, eg the granting of a credit by a bank, does not bring about any specific output, consumable in itself . The circulation service appears as a more or less necessary mediation towards the making of a commodity transaction, its `raison de'etre' flowing from the requirements of the functioning of the commodity system as a whole . Being the condition of existence of production and exchange of commodities, it can be seen as a necessary by-product, not consumable in itself, and adding nothing to the social production . But is one entitled to move from the assertion that circulation labour creates no use-value (in this sense) to the assertion that it does not create value? Marx, himself, makes this step and almost all Marxist writers follow him (Hunt being an exception) . Again, however, this does not seem correct to me . If the first definition is accepted as the basis of the reasoning, the criterion for the distinction between productive and unproductive labour is exclusively the social form in which labour is undertaken, regardless of the content of the activity or of the nature of the product . Now the classification of circulation labour as unproductive is made precisely on the basis of the nature of the product . As Hunt puts it : 'Marx's classification of workers employed by capitalists in the sphere of circulation as unproductive is based solely on the use-value of the commodity they create' (1979 : 322) . Thus this definition violates the first one . It is based on a physical criterion, considering the substance of the activity, and not on the

56

CAPITAL & CLASS features of the social relation . Lippi has rightly noticed this . Logical coherence would then entail a minor revolution : the traditional Marxist view must be abandoned and circulation labour must be considered productive, to the extent that it conforms to the conditions of the first definition . In the situation encountered in definition 1, I noticed the possibility of labour being unproductive of value but productive of use-value ; here we meet the possibility of a type of labour, which is productive of value but not of use-value . The fourth definition In the simplified Marxist model, it is implicitly assumed that there are no independent producers, that all capitalists are rentiers and that no work of control is exerted . In this case, the first and fourth definitions overlap, since all the value-producing labour is at one and the same time surplus-value producing . However, once these assumptions are relaxed, the coincidence no longer holds . The position of the independent producers is clear : they create a value but no surplusvalue . In an equilibrium situation, characterized by the absence of circulation profits and losses or of devalorization losses, all producers would earn the same income, which reduced to a certain time-basis would exactly be equal to the ME . The case of the workers exercising the capitalist function, be it foremen, managers or active owners, is a little more complicated . If one accepts the above analysis, they must be considered members of the collective labourer and full participants in the creation of value . But are they also a source of surplus-value? In other words, are they exploited? Three situations are possible : (1) their wages are higher than those of ordinary workers, as the counterpart of their exercise of a capitalist function . But nevertheless, reduced to a certain-time basis, it is lower than the magnitude of the ME . Then it can be asserted that they are exploited but at a lower rate than the other workers . (2) If their wages equal the ME, one can say that they are not exploited, although they do not benefit from the redistribution of the total profit . (3) If their wages are higher than the ME, they do benefit from such a redistribution . Between the first definition, on the one hand, and the second and the third, on the other hand, I see logical inconsistencies which have to be solved in order to preserve the coherence of the theory of value . In the present state of Marxian theory, these inconsistencies are not properly clarified . But I believe that the task is possible, providing one accepts a qualification of Marx's own positions and a correction in the name of the epistemological principles he himself advanced . If one compares the first and the fourth definitions, the problem is no longer of logical incoherence, but of their respective scopes of relevance . The first definition would attribute a broader sense to the notion of productive labour and the fourth one to a narrower one . But both exist within the social paradigm . To conclude, I cannot accept Lippi's view that the debate on value is now closed and that only òbscurantists' can still defend the Marxian theory of value . Two reasons justify my position . First, he has not


57

addressed the problem of comparing the two main paradigms, which I myself consider the foremost question . Second, it is premature to state, as he does, that `there is no point in continuing to attempt to do so (ie to defend the labour theory of value in the name of the need to delve beneath surface) in terms that encounter inseparable obstacles or lead to propositions devoid of meaning' (p110) . Contrary to Lippi's opinion, the inconsistencies which he puts forward are not so unsolvable . 24 To solve them, however, implies important revisions of Marxian conventional wisdom . One of the merits of Lippi's attempt is precisely to foster this critical re-examination.

Notes I thank Sue Black, Jacques Gouverneur, Jim Lindsay and Philippe Van Pariji for their comments and/or editing help . 1 In Lippi's analysis, this concept is confined to the pure circulation costs . 2 I cannot discuss here the question of whether the alleged duality is already present in Marx's writings . Let me just indicate the two possible positions on this point . A first stand consists in arguing that Marx's works effectively exhibit a juxtaposition of two conceptions of value, a technological and a social one . In this view, Marx is credited with having provided the foundation for a rupture from Ricardo but he is also accused of not having been able to stick to the epistemological principles which he initiated . As a result, the frequently held statement that, rather strangely, so many of Marx's readers are unable to understand correctly his theory of value, should be replaced by the proposition that Marx himself was unable to unambigously bring out one unique theory . In this case, the fact that nobody agrees on what he really meant, ceases to be amazing . The second position, however, would hold that Marx had one such theory, namely the abstract labour version, but that his disciples, starting with Engels, were unable to grasp it fully, so that they have fostered a bastard version of it . For a critique of Engels' writings on value see Dostaler (1978) and Weeks (1981) . 3 The following paragraph summarizes my own interpretation of the abstract-labour interpretation (De Vroey 1979, 1981) . Other studies which, with a series of important nuances, could be ranked in this interpretation, are : Aglietta (1979), Arthur (1976, 1979), Elson (1979), Fine and Hams (1979), Gerstein (1976), Himmelweit and Mohun (1978), Kay (1976, 1979), Lindsay (1981), Pilling (1972), Shaik (1977), Weeks (1981) . 4 The interaction between the synchronic and the diachronic time-structure is examined in my article (1981) . 5 However, the two dissident theories do not join at all . On the contrary, they lead in opposite directions . 6 This proposition is justified in my article "Money and Inflation in Intensive Accumulation" (1981) .

7

For a critique of the Benetti-Cartelier theory, see Guibert (1980) . 8 It must be recalled that both these paradigms are in opposition to the neo-classical factors of production theory . 9 For an example of a discussion which I see as confined within the premises of the technological paradigm, see Armstrong, Glyn and Harrison (1978) . 10 Two recent attempts are Savran (1979) and Ganzmann (1980) . 11 On the one hand, what is called the law of value is just a definitional premise, which is of an unprovable nature . On the other hand, the notion of universal law refers to a regular interlinkage between variables which is supposed to impose itself, to be observable and also refutable . Lippi indulges himself in the mistaken avenue when he seems to assume that these laws are to be proven . However, he is not responsible for the use of labels, which are introduced by Marx . 12 The difficulty of discussions about premises is illustrated by the reaction of Lippi to Lebowitz's criticism of Sraffa, taxing the latter for having a natural conception of production relations . Lippi finds this "em ty chatter about grand themes" (p .102) . 13 In other words : LGPLP = LME - Productivity

58

14

CAPITAL & CLASS

These elements are examined in details in my study "Money and Inflation in Intensive Accumulation" (1981)

15 16 17 18 19 20 21 22

23 24

It has been introduced by Gouverneur (1978) and Aglietta (1979) . As Shaikh notes in connection with this second aspect : 'it is a case of transforming one form-of-value, direct prices, into another form, prices of production' (1977 : 134) . The same point is stressed by Pilling (1972) . The term `direct price' is used by Shaik (1977), the term 'simple price' has been introduced by Yaffr (1974) and is used by myself (1979) . It will be argued below that the transformation from simple prices to prices of production normally entails a modification of the magnitude of the rate of profit . For a critical examination of Marx's writings the reader is referred to Hunt's article (1979), where he will also find references on the contemporary debates in the English language literature . This notion is examined in my study 'Le travail m6nager et le rapport salarial . Un essai de typologie' (1980) . See also Lindsay (1981, chapter 6) . Of course, the pressure towards the decrease of the socially necessary labour time affects the prestige and control activities, like the other ones . This position is provocative only in so far as a normative content is given to the notions of productive and unproductive labour, a position which I would definitely not take . Like Ohlin Wright (1978), I think that the interlinkage made by Poulantzas (1975) between the definition of unproductive labour and the analysis of social classes must be rejected . The distinction can in no way serve as a platform for the construction of class positions . The term 'indiividual value', sometimes used by Marx, does not make sense to me, because value results only from the homogenization of the individual norms of efficiency . The analysis of the transformation problem presented above is not the only possible way of resolving the contradiction traditionally put forward . Another line is proposed by Dumenil (1980) and Lipietz (1981) .

References AGLIETTA Michel (1979), A Theory of Capitalist Regulation . The US Experience, New Left Books ARMSTRONG Philip, GLYN Andrew and HARRISON John (1978), 'In Defence of Value', Capital and Class, no 5, Summer. ARTHUR C . J. (1976), 'The Concept of Abstract Labour', Bulletin of the Conference of Socialist Economists, October ARTHUR C . J. (1979), 'Dialectics of the Value-Form' in D . Elson ed ., Value, the Representation of Labour in Capitalism .

BENETTI Carlo (1974), Valeur et Repartition, Presses Universitaires de Grenoble-Maspero . BENETTI Carlo and CARTELIER Jean (1980), Marchands, salaries et capitalistes, Presses universitaires de Grenoble - Maspero. BULLOCK Paul and YAFFE David (1975), 'Inflation, the Crisis and the Post-War Boom' Revolutionary Communist, no 3-4, November. CARTELIER Jean (1976), Surproduit et reproduction sociale, Presses Universitaires de Grenoble-Maspero . CARTELIER Jean and BENETTI Carlo (1980) Marchands, salaries et capitalistes, Presses Universitaires de Grenoble - Maspero . DELEPLACE Ghislain (1979), Theories du Capital, Presses Universitaires de GrenobleMaspero . DE VROEY Michel (1979), 'Travail abstrait, valeur et marchandise . Une reinterpretation de la theorie de la valeur de Marx', Cahier du Department de Sciences Economiques de l' Universite de Montreal, 1st part, no 7912, 50p ; 2d part no 8016, 199p . DEVROEY Michel (1980), 'Travail m€nager et rapport salarial . Un essai de typologie', Working Papers de l'Institut des Sciences Economiques de l'Universite de Louvain, no 8 DEVROEY Michel (1981), 'Money and Inflation in Intensive Accumulation', mimeo DOBB Maurice (1973), Theories of Value and Distribution since Adam Smith, Ideology and Economic Theory, Cambridge University Press . DOSTALER Gilles (1978), Valeur et prix . Histoire d'un debat, Presses Universitaires de Grenoble-Maspero .


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DUMENIL Gerard (1980) De la valeur aux prix de production, Economica ELSON Diane (1979) ed ., Value: The Representation of Labour in Capitalism C .S .E . BooksHumanities Press . FINE B . and HARRIS L . (1979), Rereading Capital, Columbia University Press . FRADIN Jacques (1973), Valeur, monnaie et capital, University de Paris, These de doctorat . GANZMANN Heiner (1980), Transformations ofPhysical Conditions of Production . Steedman's Economic Metaphysics, mimeo, 16p . GERSTEIN Ira (1976), `Production, Circulation and Value', Economy and Society, vol 5, no 3 . GOUVERNEUR Jacques (1978), Elements d'economie politique marxiste, Contradictions . GUIBERT Bernard (1980), 'Les ravages logiques', in Critique de 1'economie politique, no 13, Oct-Dec. HIMMELWEIT Susan and MOHUN Simon (1978), `The Anomalies of Capital', Capital and Class, no 6, Autumn . HODGSON Geoff (1980), 'A Theory of Exploitation Without the Labour Theory of Value', Science and Society, Fall . HUNT E .K . (1979), 'The Categories of Productive and Unproductive Labour in Marxist Economic Theory', Science and Society, Fall . KAY Geoffrey (1976), 'A Note on Abstract Labour', Bulletin of the Conference of Socialist Economists, February. KAY Geoffrey (1979), 'Why Labour is the Starting Point of Capital', in ELSON ed ., Value: A Representation of Labour in Capitalism .

LINDSAY, Jim (1981), The Work that Must be Done: Social Practice and Society University of Liege, mimeo . LIPIETZ Alain (1981), 'The So-Called Transformation Problem Revisited' The Journal of Economic Theory, (forthcoming) LIPPI Marco, (1980), Value and Naturalism in Marx, New Left Books . MEEK Ronald (1974), Studies in the Labour Theory of Value, Lawrence and Wishart, second edition. OLIN WRIGHT Erik (1978), Class, Crisis and the State, New Left Books . PILLING Geoffrey (1972), `The Law of Value in Ricardo and Marx', Economy and Society, no

3. POULANTZAS N . (1975), Classes in Contemporary Capitalism, New Left Books ROBINSON Joan (1966), An Essay on Marxian Economies, MacMillan. RUBIN Isaac (1972), Essays in Marx's Theory of Value, Black and Red . SAVRAN S . (1979), 'On The Theoretical Consistency of Sraffsa's Economics', Capital and Class, 7 Spring. SHAIKH Anwar (1977), 'Marx's Theory of Value and the "Transformation Problem"', in J . SCHWARTZ Ed, The Subtle Anatomy of Capitalism, Good Year . STEEDMAN Ian (1978), Marx after Sraffa, New Left Books . SWEEZY Paul (1942), The Theory of Capitalist Development, Monthly Review Press. WEEKS John (1981), Capital and Exploitation, Princeton University Press and Edward Arnold, forthcoming. YAFFE David (1975), 'Value and Price in Marx's Capital', Revolutionary Communist, vol 1, January .

Housing provision and the economic crisis Michael Ball

The recent cuts instate housing expenditure are reviewed and placed in the context of the economic crises and growth of owner occupation . It is suggested that owner occupation does not even provide a capitalist solution to the housing crisis and a radical transformation of both council housing and owner occupation is argued for through programmes associated with nationalisation of land and the building industry .

Introduction

There is a severe housing crisis in Britain . Data on physical housing requirements, soaring costs, and cuts in state expenditure highlight it clearly . In part this crisis is a result of the wider economic crises that have occurred over the past decade and particularly the present Government's economic policies . But there is also a growing longterm political crisis over housing provision as a revival cannot be achieved by policies of more-of-the-same-old-medicine . Restoring council housing cuts or bolstering demand in the owner occupied sector will not create much new housing, only a sharp inflation in construction and land costs whose impact will rapidly spread through to affect rehabilitation and modernisation programmes and the costs of existing housing . It is becoming clear that the types of provision currently associated with both council housing and owner occupation, the housing tenures of over 85 per cent of all households, are increasingly untenable . There is, in other words, a dual aspect to the current housing crisis : one part is associated with the general crisis in the economy and the government's response to it, the other derives from the ways in which housing is provided . This paper will explore some of the implications of this duality. It will argue there is space for a new politics of housing based on transforming the way in which housing is provided within existing tenure forms . This transformation can be

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made possible through programmes of land and building industry nationalisation . The housing crisis

The rate of new housebuilding is one of the best barometers of changes in the state of housing provision . It cuts through all the rhetoric of things-are-not-as-bad-as-they-seem, `crude housing surpluses' and the fallability of population projections . In periods when housebuilding is expanding, housing conditions for most people will tend to be getting better ; when it slumps the problems begin to mount up . Like all barometers, the rate of new housebuilding is only an indicator of change not a fundamental cause . It highlights, nonetheless, that things were getting worse throughout the seventies and accelerating rapidly into crisis by the end of the decade (see figure 1) . In 1969, almost 400,000 dwellings were completed ; yet by 1981 output was down to 199,000 and only 153,000 new dwellings were started during the year so 1982 is likely to see completions near the derisory 150,000 mark with little sign of an upturn in sight . Council housing has been worst hit with only 20,600 new dwellings started in 1981 compared to almost 200,000 in 1967, the peak year of the 1960s . But private housing has also experienced a sharp decline with output only half that achieved in the mid-sixties . When this level of output is compared with requirements, the extent of growing shortfall is clear . Data on housing need is bound to be rough given the difficulties of population forecasting and of estimating needs concealed within the current housing system . But, in what is still regarded as the best estimate of crude housebuilding requirements (given in the 1977 Housing Policy Review), at least 300,000 new houses per year are needed . That figure has been met in only three years since 1973 . Meanwhile the existing housing stock is ageing : over 1 million houses are unfit or require repairs costing over £3000, another 1 .5 million households' dwellings lack a basic amenity and there is a severe mismatch between the location and type of dwellings and households (HCEC 1981) . Council housing has been hardest hit because of public expenditure cutbacks . It is worth examining these housing cuts in terms of their effect on capital and current expenditure separately, as this accounting distinction highlights the two crucial uses of housing finance . Capital expenditure is money spent on new and renovated housing by the public sector (councils, new towns and housing associations) . Current expenditure is the cost of running the existing stock (paying off loans borrowed in earlier years to finance housebuilding, and undertaking maintenance, repairs and administration) plus the cost of rent rebates given to poorer tenants . Both these categories of expenditure are political products rather than simple consequences of accounting convention . The classification of rent rebates, for instance, as a cost of council housing instead of an element of the social security system can only be understood as part of a persistent, long-term attempt to make council housing look an expensive drain on the state exchequer . This division into capital and current expenditure helps to highlight the recent political history of council housing cuts . Capital expenditure

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CAPITAL & CLASS on public housing has fallen in real terms every year since 1975/76, according to the 1981 White Paper on Government Expenditure . The Tory government cuts therefore have continued a trend that had already been well entrenched during the later years of the previous Labour administration . That Labour government, however, did not directly attack state subsidies on current expenditure . Up to 1980/81 subsidies on current expenditure slowly rose ; pushed up, amongst other things, by rising interest rates . Yet during the 1981/82 financial year the Tories hope to cut non-rebate related subsidies by a staggering 42 per cent (£738m) . This is being done principally by increasing council rents, although rises in rent rebates and allowances will partially offset that cut . In 1980/81 average rent increases of 32 per cent were sought, in 1981/82 they were 39 per cent ; and from Spring 1982 they will rise by another £2 .50 a week . With this scale of increase average unrebated rents will almost have trebled in three years from April 1979 . One consequence of these massive rent rises is that some councils have started to make profits on their housing stock . 50 local authorities managed to achieve this feat last year according to the public accountants' institute, CIPFA ; Colchester topped the list with a profit of £1 .1m . These profits are discreetly called 'surpluses' and most are used to keep down the rate demands made on owner occupiers . In years to come more and more councils will share in a growing surplus created at the expense of council tenants . The cuts in state expenditure on council housing have not stopped . More are planned for the next two years at least : another £1000m is to be cut by 1984 according to the 1981 Expenditure White Paper .' Given the low level of council housebuilding, the squeeze again will be on current expenditure subsidies . Rents seem destined to rise even further . The problem for the Tories is that after a while, given the social composition of council tenants (most have not got a job), rent increases produce less and less additional revenue as rent rebates automatically rise, mainly financed directly by central government . So to meet these new cuts it looks like attempts will be made to cut rent rebates sharply, as they are the only large uncut item left . Initial steps have already been made in this direction . The system of assessing and paying rebates has been revised with effect from April 1982, and according to pressure groups like Shelter, the new system will exclude large numbers of tenants currently getting rebates . Council housing has borne a disproportionate share of recent cuts in state expenditure . It has been clearly assigned to a 'welfare net' role . This trend has been going on throughout the seventies ; the Tories are simply speeding it up and reducing the level of the welfare to a derisory, basic subsistence amount . The paradox is that these draconian policies have done little to reduce overall state expenditure on housing (with the possible exception of the present year with its massive council rent rises) . State expenditure on housing over the past five years may actually have substantially increased .

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Tax reliefs to owner occupiers are not shown as state expenditure, yet constitute a loss of state revenue and so are equivalent to extra expenditure . These items have grown sharply during the 1970s . The 1981 White Paper calculated that the state lost almost £2000m as a result of owner occupiers' mortgage interest tax relief in 1980/81 . This sum rises every year and is expected to be twice as large as general subsidies to council housing in 1981/82 . Another £2400m was lost in state revenue in 1980/81 by the exemption of owner occupied from capital gains tax . Once subsidies to owner occupiers are brought into the arithmetic, therefore, the whole notion of housing cuts is transformed . Instead of a general cut in state housing expenditure there has been a shift towards owner occupation, especially to owners with mortgages .' There are about the same numer of council tenants and owners with mortgages in Britain (34% and 30% respectively, according to the 1979 General Household Survey) . It is interesting to note the social composition of these two groups . According to the 1978 National Dwelling and Housing Survey, 93 per cent of mortgagors are in full-time employment and 83 per cent are aged 25-54 and so in their peak earning years . The overwhelming majority of them (86 per cent) are also in the economically stronger socio-economic groups- namely, skilled manual (32 per cent), intermediate or junior non-manual (22 per cent) and professionals, employers and managers (31 per cent) . Mortgaged owner occupation is consequently the tenure of the rich, the `middle class' and a large proportion of the upper and median echelons of the working class . Of council housing tenants, on the other hand, only just over half had full time working head of households (and that was in 1977) . Many tenants are retired or in the last èconomically active' years of their lives : 52 per cent are aged 55 or older . There has been a growing trend throughout the seventies for council housing to be the tenure for those excluded from owner occupation, either because they are too old to embark on the mortgage cycle or because they cannot afford it . It is quite likely that owner occupation is now the majority tenure for the èconomically active' sectors of the working class (on virtually any definition of that class) . If the `middle class' are included, with its contradictory social location (see Wright 1979), most groups which have a major power to push up wages at the expense of profits are substantially affected by the cost of owner occupation . In terms of the social groups receiving state housing subsidies the shift of housing subsidies away from council housing towards owner occupation consequently has been a redirection away from a housing tenure where households increasingly are economically marginalised (either through not being èconomically active' or being one of the weaker ones of those that are) towards the tenure of those with greater economic power to undermine the profitability of capital . The significance of this point will be developed further in the next section . Yet all is not bright in the owner occupied sector . One of the most

64

CAPITAL & CLASS notable features of the owner occupied housing market in the 1970s has been its remarkable instability : periods of house price boom have been followed by periods of stagnant prices and sometimes even price falls . Turnover and the associated ability of existing owners to sell has also varied sharply (though not always in unison with the price variations) . These features have helped to transform the nature of the speculative housebuilding industry and to push up building costs . Significant increases in new supply tend only to occur when house prices are rising fast . This has helped generate a never-ending cycle of housing market boom and slump . When house prices are stagnant or rise only slowly the rate of housebuilding is low, a relative shortage of owner occupied housing begins to mount and this helps spark off a period of rapid house price inflation . That inflation forces up purchasers' housing costs and so chokes off the inflationary boom, forcing the housebuilding industry into crisis again . This vicious circle of boom and slump has emerged over the past decade as a new feature of the owner occupied market . One consequence of this feature of owner occupation has been that the shift of state expenditure from council housing to owner occupation has led to a fall in total housing output given in figure 1 . Many of the subsidies in the council sector were designed to elicit new housing output directly . At best subsidies on the mortgage interest of owner occupiers do this indirectly . If, as was argued above, new owner occupied housing is not forthcoming, up go house prices . So state subsides to owner occupation will rise fastest the lower the general trend level of private housing output . This is the reverse of the effect with council housing . For fifty years after the start of large scale state intervention at the end of the First World War an increase in state expenditure on housing could be regarded as directly leading to an overall expansion or improvement in the total housing stock . The shift in emphasis to owner occupation in its current form has broken that link . The losers have been the working class .

Housing provision, accumulation and state policy

This section will try to outline some of the economic pressures that have helped to generate the present housing situation . It requires a statement of certain general economic interrelations in an advanced capitalist economy and application of them to the contemporary British situation . For brevity, the discussion will be schematic rather than comprehensive . When looking at the economic implications of particular forms of housing provision on the accumulation of capital it is necessary to distinguish between capital that profits from housing provision and other capitals . For most capital housing will represent only a cost : a drain on potential surplus value . That cost will appear either in the form of taxes paid for state expenditure or wages paid to workers (whose pay in turn will be taxed to help finance state expenditure) . Adequate housing for its workforce is a direct benefit to a firm and, although of less immediate relevance, so is the housing of potential future workers . Better housing improves the productivity and avail-

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ability of labour-power . Cheaper housing costs, moreover, will tend to lower the pressure to increase wages . Housing provision for other sections of the population, on the other hand, is just a cost to capital . To give it a functional name, it can be said to be a payment to maintain social harmony . Less functionally, it can be said to produce different pressures within class struggle as it does not affect the immediate relation of production between capital and labour . With the exception of a handful of nineteenth century industrialists, the interest capital may have in working class housing provision has never been manifested as a philanthropic concern with working class housing conditions . Firms do not calculate the long term benefits to profits of spending money on better housing for workers . At the moment, all that can be said about the relation of accumulation in general to working class housing is that at times there will be a close correspondence between working class aspirations for decent, low cost housing and the interests of capital ; whilst at other times they will be diametrically opposed . Analysis of housing provision, therefore, should consider when and how such a correspondence or divergence emerges as it crucially affects the possibility of introducing progressive housing programmes . Major changes in housing provision in Britain during this century have only ever come about as the result of intense political pressure . The introduction of rent control on private housing during the First World War and the final acceptance of large-scale central government expenditure on council housing at the end of that War are two of the clearest examples . Working class agitation and the fear of it spilling over into revolutionary demands forced reluctant governments to introduce these measures ; even if the form in which they were introduced and subsequently operated can afterwards be seen clearly as beneficial to capitalism's continued existence . In less heroic periods the importance of political pressure can be seen as well . In the early sixties, for example, political agitation and scandal forced housing to the forefront of the programmes of subsequent administrations (c .f. Donnison 1967) . It is clear that the economics cannot be divorced from the politics of housing provision . What is apparent from post-1915 housing policies in Britain is that private agencies cannot come close to meeting even the most minimal housing aspirations of the mass of the population without substantial state orchestration of their actions and its direct economic involvement . This is as true for private tenures like owner occupation as it is for state owned council housing . To understand the economic interlinkages involved in housing provision, therefore, it is necessary to consider the political process in more detail . Rarely does political pressure over any issue derive from an homogenous block, like the working class . Instead it comes from amorphous groupings the constituent parts of which vary over time, and frequently those parts are not formally linked nor recognise their common interests . Such groupings, moreover, often coalesce around C&C 17 - E

66 CAPITAL & CLASS specific issues rather than broad long-term programmes . In housing, this process can be seen in the way in which political agitation becomes associated with specific tenures and issues within those tenures ; as, for example, in the momentous, widespread agitation against the 1972 Housing Finance Act's attempt to raise council rents . This type of process by which political demands get formulated, and perhaps taken up, led or encouraged by one of the various parliamentary political parties, has led to many on the Left seeing the politics of housing as inevitably generating oppositions between households in different tenures . It is suggested that different tenures generate different economic interests and the defence of one usually implies antagonism to others . (See, for example, Saunders' 1979 analysis of owner occupation) . That view, however, assumes that stable, clearly identified, homogenous economic interests are associated with each tenure, interests which form the only basis for political groupings and that never change . It consequently ignores the dynamic of economic and social change within capitalist societies that helps to mould and to change those groupings and the issues around which they coalesce . In doing so, it comes very close to the pluralistic approach to the politics of housing from which Marxists have been trying to break for over fifteen years . This argument, of course, does not make economic forces the `real' underlying determinant of changes in housing provision . Whilst it may be the case that state expenditure in council housing is being cut because of the current economic crisis, that action is still a specific political response by the present government to the crisis (one that is part of a wider back-to-the-private market, monetarist programme that is making the crisis worse) . Moreover, if there had not been earlier political pressure for council housing there would be no council housing to cut . There is no point, therefore, in looking for a one way line of causality from the economic `base' upward . The ideological forms in which political debate and action take place, however, can reinforce the dominance of particular economic interests in the formulation of state policies . In terms of the economy as a whole, the interests of capital frequently appear as inevitable, quasi-natural economic necessities . Economic growth, for example, is equated with capital accumulation ; new investment generally is posed as the problem of encouraging new private investment (via inducements not directives) ; improvements in labour productivity have to be on capital's terms, for instance . The result is that there is enormous pressure on any government to introduce policies that place emphasis on reducing working class living standards and conditions of work during economic crisis, with mass unemployment used as a stick to weaken resistance to such measures . Housing as a significant component in the cost of maintaining working class living standards will come under severe attack . In recent years, however, the ideological and political content of such apparent economic necessity has been exposed by the debates surrounding the Alternative Economic Strategy (e .g . London CSE Group 1980) . But the implications for housing have yet to be worked out .

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A place where the ideological defence of dominant economic interests clearly gets dressed up as economic inevitability in housing provision is in the actual way housing gets provided in any tenure form . Associated with any tenure there is a particular set of social relations' involved in the provision of housing (in land ownership, building, finance, property ownership etc . ) . These social relations are the historical product of earlier struggles over housing provision . They are not the inevitable consequence of any particular tenure form . But their existence as established structures of provision will determine the development of those tenures, how much housing in them costs, how much is provided and of what type . Each category of social agent within those structures of provision will have their own economic interests, and some of them are in conflict (e .g . building workers and building firms) . Those structures also have their own dynamic, the product of which may end up benefitting no one but the interests that dominate that form of provision (e .g . the industrialised systems building of council estates in the 1960s/70s) . Yet rarely are the social relations associated with housing tenures analysed or criticised . Ideologically they are treated as virtually inevitable ; the recent debate over local authority direct labour and council housing was a rare exception but even then the argument failed to produce any major political impact . (See DLC 1978 and 1980) . The two times when there have been major progressive shifts in state housing policy, after both world wars, occurred because no other viable alternative form of mass housing provision existed at the time . Working class demands for better housing could consequently be met only by adopting key aspects of progressive political programmes . Prior to the First World War the structure of provision associated with private landlordism collapsed . Only limited amounts of new housing were being provided in this tenure so the rents of existing dwellings began to rise sharply . After the War in 1919 the only possible way to expand working class housing, given the lack of alternatives, was the large scale subsidisation of council housing . The interests of capital, the working class and particular state functionaries and politicians `coalesced' to squeeze out the private landlord . It was hardly surprising that this alliance turned out to be only temporary but it introduced a new dimension into housing provision, central government funded council housing, that has existed ever since . Similarly after the Second World War expansion of private renting was economically impossible and the structure of provision associated with the new mass inter-war tenure of owner occupation could also not build new working class housing . To get new output, building prices had to be held down by a system of building controls . This facilitated political pressure for the expansion of council housing . For a few years, good quality council housing was built within a framework of building controls, on land that could be compulsorily purchased at its current use-value (and after the 1947 Planning Act all development

68

CAPITAL & CLASS land was partially nationalised) . For a while, not only the private landlord but also the speculative builder and the private landowner were politically isolated out of mass housing provision . It took until 1953/54 for the speculative builder to become a major force again . And until 1959 councils could still compulsorily purchase housing land at its current use-value . Both of these events in the history of housing policy arose because political demands for particular types of housing provision could be forced onto the political agenda as a space had been created by the permanent or temporary collapse of other alternative structures of provision . Yet at both times the political debate was solely about tenures and state subsidies, not about the social relations involved in provision in those tenures . The political debate consequently took place within an ideology that saw housing provision as simply being about providing housing as an item of personal consumption which has to be subsidised (or not) by the state . Tenure and subsidy were the items for political struggle ; who would do the providing within a tenure and how they would do it were just technical matters left to experts outside of mainstream political action . This type of political action will be called here the politics of tenure . It has had a profound influence on the nature of housing policy in Britain as it has forced the relations of production out of political discussion over housing provision . Tenures as a result have become associated with specific structures of housing provision . It, for example, can be argued that problems over the way council housing has been provided are a major cause of the decline of that tenure . Yet no serious attempt has been made to change the form of provision associated with the tenure . Similarly, on the Left, the equation of tenures with specific structures of housing provision has meant criticism of the latter leads to the rejection of the tenures themselves . This has resulted in the search for new forms of mass housing provision . The problem is that no viable one is on the horizon within societies still dominated by capitalism . (Large scale housing associations or cooperatives, if formulated within a politics of tenure, would just be like the social housing institutions of many Western European countries : state orchestrated bodies little different from present day council housing in Britain .)

Tenures and housing policy since the 1950s

It is now possible to make some brief comments on the history of housing provision since the end of the early years of post-war reconstruction at the beginning of the 1950s . The economy expanded rapidly during the long post-war boom, albeit at a slower rate than in many other countries . There were periods of economic slowdown, with balance of payments crises and state expenditure cutbacks . Also there were variations in the political ideologies of government between Conservative and Labour administrations . But a Labourist ideology was a major political force with which even the Conservatives had to

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come to terms . During these years of expansion, the a ailability of an adequate labour force in areas where employment was -xpanding was a major issue and housing shortages represented a ci , ar bottleneck, especially as much existing housing was of poor qualit .° If the period of the fifties and sixties are descripti ely telescoped together, council housing was predominantly the ten ire of housing renewal via comprehensive inner city redevelopment ind some suburban overspill ; whilst owner occupation was the tenure of suburban expansion . From 1958 onwards, more houses were completed every year in owner occupation than in the council sector . Suburban expansion was consequently dominant and subsidies to owner occupation were not so much to the final consumer but to the speculative housebuilder and landowner . The latter subsidies took the form of large scale expenditure on physical infrastructure and associated land-use planning activities and complete private appropriation of the substantial land price gains that occurred as a result . Council housing, meanwhile, was used increasingly as a site for experimentation with new land-use and building designs and also for new industrialised building techniques . In the fifties, housing provision was kept cheap by lowering standards . This policy, however, has obvious limits . Political pressures forced a rethink on standards, so emphasis switched to halting the upward spiral in building and land costs . This took a variety of forms : for example, attempts to get lower priced land for owner occupation, the experimentation with building technologies in council housing (one of whose aims was to weaken the bargaining power of better paid craft building workers), and additional subsidies to encourage that experimentation . The long boom had begun to falter during the sixties : there was greater concern with the level of wages, as much as with the availability of a workforce . Ìncomes policies' were introduced, and unemployment was deliberately increased in the hope of reducing wage demands . Emphasis on reducing the costs of housing should be seen in this light : they might lower pressures for wage increases . Other N . W . European countries explicitly announced this effect when explaining their housing subsidy policies . The growing crises of the 1970s reinforced policies aimed at reducing state expenditure . Holding down wage rises and cutting state expenditure became ever more familiar sentiments of successive governments . Rising mass unemployment meant the availability of a workforce was no longer a major issue . So State housing policies were closely geared to attempts to hold down wages and cut public expenditure . Emphasis oscillated between which aspect was more important, but neither depended on an expansion of housing output (with the partial exception of the 1974 Labour government's social contract with the TUC which promised an increase in council housing) . Even suburban expansion was slowed down by reduced public sector infrastructural investment . This brief description of the past three decades shows that the

70

CAPITAL & CLASS economic aspect of state housing policy has links with the phase of the accumulation cycle and the balance of forces between capital and labour . At one time the availability of labour-power seems the dominant aspect, at another the influence of housing costs on wages, and sometimes cuts in state expenditure will be overriding . Switches of emphasis between housing tenures can be associated with the new threads in this relation ; as they are a means by which the new emphasis can be implemented . During some periods both capital and the working class can benefit economically from the large scale provision of good, low cost new working class housing, as for instance from the late nineteen forties to the late nineteen sixties . At other times their interests over working class housing diverge as occurred during the nineteen seventies . An additional twist to the latter period is added by the fragmentation of working class economic interests over housing caused by the shift of state policy towards emphasis on owner occupation alone . Previously all strata of the working class had benefitted from state involvement in the expansion of housing provision in both the council and owner occupied sectors ; whereas with the rundown of council housing only those workers who could afford owner occupation could possibly gain . Yet that strata of the working class were the ones most able to exert economic leverage over capital in the changed economic circumstances of the 1970s, as was noted earlier . The congruence over housing policy, if it ever existed, had seemingly narrowed to one between capital and just one section of the working class . These speculations about changes in economic interests over housing are only one element in understanding the consequences of changes in housing policy, especially as the shift to owner occupation did not even succeed in reducing the housing costs of working class home owners . This failure of state policy to reflect changes in economic interest partly arise because the economic balance of class forces is only opaquely articulated at the political level . But just as important were the policy measures used on tenures . They were very blunt instruments by which to try to alter relations at the economic level as further consideration of the two tenures during the 1970s will show . The changed economic circumstances of the seventies affected the structures of provision associated with council housing and owner occupation differently . Council housing was in by far the worst position . It had the legacy of the disastrous building experiments of the sixties, a dependence on the costly `contracting system' for new building, and a financial structure that was uniquely susceptible to accelerating inflation (the so-called `front loading' phenomenon 5 ) . Council housing, moreover, is state expenditure in toto (even if it is also an important source of state revenues as well) . The draw of owner occupation also gradually denuded council housing of its potentially most economically powerful households . It became a sitting duck for the attention of the political ideologues of reductions in state intervention and expenditure . Furthermore, the increasingly apparent need to reform its internal structure of provision was

HOUSING IN CRISIS

71

politically used against the tenure as a whole . `Freedom' in the double-speak of the 1977 Housing Policy Review meant `not council housing' . These problems, and the apparent gains for individual households of owner occupation, intensified the pressure from some tenants to increase the avenues open to owner occupation . Council house sales became more politically significant . In 1980, that programme reached a new peak : 81,000 council dwellings were sold in England and Wales at an average discount on price of 40 per cent (Housing and Construction Statistics, 1981) .This, incidentally, is another means by which the housing costs of the medium/upper strata of the working class can be discriminantly subsidised in a way that ensures the general allegiance of such households to the political Right . Owner occupation has been affected differently . Inflation has created the appearance of reducing substantially individuals' housing costs by eroding the real value of mortgage debt and generating money gains from house price rises . Whether it actually does is far more complex . It depends on the resultant feedback effect on house prices (such reductions in real costs over time by increasing demand may well lead to further increases in house prices to the benefit of builders and landowners rather than house purchasers) . And the level of prices will determine the magnitude of the initial cost of house purchase from which the subsequent decline occurs over time . Moreover, even if the costs of owner occupation are actually made lower this might also reduce upward pressures on wages or non-wage provisions such as pensions ; so whether any individual household gets cheaper housing and the same non-housing standard of living is highly contingent . As was pointed out earlier, the 1970s have also seen a new instability into the owner occupied market . Builders and landowners are no longer guaranteed the steady land price gains of the fifties and sixties ; they have had to speculate more carefully on the existence of booms and slumps (and on attacking the `constraints' of the land-use planning system) . The resultant restructuring of the speculative housebuilding industry has rapidly forced up building costs . Longterm rises in house prices, booms and slumps, and a marked sensitivity to changes in incomes and mortgage interest costs, therefore, are now endemic to the owner occupied market . Because of the wide dispersion of housing costs in this tenure, it is not possible to make simple statements about housing costs and incomes . But one indicator is the initial average level from which a household's costs will decline (with inflation) over time, (ie initial mortgage repayments) and comparison of that with average earnings . The figures do not take account of the taxation of income or mortgage tax relief, so they indicate directions of change rather than actual proportions of income absorbed by housing costs which are overstated . The data, nevertheless, do show a sharp rise in housing costs between the sixties and seventies . In the late sixties, the ratio of initial mortgage repayments to average earnings was stable at 25%, during the 1970s it fluctuated between approximately 30 and 40 per cent, in

72

CAPITAL & CLASS 1980 it rose to an incredible 45 per cent . In such circumstances it is unlikely that owner occupation has been much of a downward force on wages over the past decade, yet it has increased state expenditure . So it does seem that tax relief has kept the cost of owner occupiers' housing down only for a given level of costs ; because of the present structure of owner occupied housing provision the existence of tax relief has simply enabled house prices to rise higher than otherwise, increasing the level of total mortgage costs and offsetting the initial tax deduction . Far from being a back-to-the-market capitalist solution to the housing provision of key sectors of the working population in an economic crisis, this argument would suggest that the present structure of owner occupied housing provision is increasingly coming into contradiction with the needs of capital . The economic failure of owner occupation as a form of mass housing provision consequently goes far beyond affecting solely those households excluded from living in the tenure . It affects households in the tenure and also capitalism itself . This means the growing housing crisis in Britain cannot simply be put down to an onslaught by capital and its functionaries on the living standards of the working class as part of a capitalist way out of the current economic crisis . The economic benefits to capital needed to justify such an argument are not there ; only the private agencies dominating these structures of provision are economically benefitting from them . It might be suggested that the benefit to capital is less directly economic via the incorporation effect that owner occupation has on working class ideology . But such instrumentalist theories of ideology treat the working class as passive, simple recipients of convenient ideologies for the ruling class . If that were true far more simple ploys than inventing owner occupation in its current form would suffice to gain working class ideological acceptance of their current social situation . Whether a house is thought by its owner as a mini-landed estate enabling them to identify with the highest in the land, or as a millstone made of unrelenting mortgage debt depends on much wider questions of the formation of ideology than simply on housing tenure . The implication is that a political space for significant changes in the nature of housing provision has opened up in Britain of a magnitude that has not existed since the end of the First World War . This space for change has arisen because a wide variety of interests stand to gain from such change, in a similar way to the coalition which squeezed private landlords from their dominant position 60 years ago . To talk of a `political space', however, is only to suggest that pressures are growing for fundamental reform . It does not specify what those changes should be . The Left needs to develop housing programmes which can both win mass support and be feasible for the space to enable progressive change to occur . There are grounds to think that large scale mass support could be won for radical changes in current forms of housing provision,

HOUSING IN CRISIS

73

because the way in which both tenures have developed in Britain has ended up producing housing that is more expensive and less physically satisfactory than it need be for virtually every household in the country . The wider social implications are also enormous affecting the physical environment in which people have to live and the lifestyles which they can adopt . An important issue not covered here, for example, is the effect on household structures . The nature of housing provision has widespread repercussions on personal life, acting as a severe restriction for instance on attempts to break down the dominance of patriarchal, nuclear family structures . A major problem in proposing changes at present is that there is substantial confusion and disagreement over what is `progressive' and `feasible' in housing reform . This has arisen, I would suggest, partly because of an over emphasis on housing tenure .

Towards new forms of housing provision

What can be concluded from this discussion? The most obvious point is that the present housing crisis is not simply the result of the immediate economic situation or of misguided Tory policy . These two instead have heightened contradictions that have been growing for a number of years . The depths of the economic crisis and the response to it by the government have, however, numbed political expression of the effects of the housing crisis . That cannot last forever . But most discussion of housing issues has been narrowed into the framework of the politics of tenure : pick a tenure, get it subsidised . There is a need to break out of this framework and be more aware of the present forms in which housing is provided within specific tenures . This means that housing provision should not be seen simply in distributional terms . A theoretical break must be made with treating housing provision either as just one element in the distribution struggle between capital and the working class or solely as a distributional conflict between households classified into competing social groups by the tenure in which they live . The most obvious theoretical critique of such distributional perspectives is that they ignore the effect of relations of production on the distribution of the social product . In terms of housing this means emphasis must be placed on the structures of provision associated with tenures, altering those structures of provision could entirely alter the distributional consequences of each tenure form . Obviously political judgement has to be exercised in proposing such reforms . For instance private landlordism of the type housing ninety per cent of the population prior to 1914 can only be supplanted by new tenure forms . But this is not the case with present day council housing and owner occupation . They both can be transformed, and given their widespread support amongst different sectors of the working class, it is politically important to embark upon such change .

74

CAPITAL & CLASS It is in this sense that the politics of housing needs to be more than a politics of tenure . In contexts like modern Britain (and most other advanced capitalist countries) where there is more than one housing tenure in which the mass of the population lives, not only is the distributional perspective theoretically wrong, it is also unnecessarily politically divisive . New circumstances anyhow are forcing change . With the expansion of owner occupation in the working class in Britain and the obvious signs that even more want to be owners (viz the recent `success' of council house sales), the politics of tenure has come into difficulties . Socialist housing politics if it simply remains critical of owner occupation becomes increasingly narrow in its appeal . If a break is not made with the distributional approach to housing the consequences are either a depoliticisation of housing issues (the dominant current trend in Britain), opportunism (the path taken by the last Labour government), or mystification in the form of a unified `working class' housing strategy (eg build 1 million council houses) . The last trend is unfortunately growing . It fails to recognise the divergent needs of those living in different tenures . It is sometimes argued, for example, that although owner occupation generally does confer economic benefits over renting, somehow working class homeowners fail to get them . Working class political demands over housing consequently can be assumed to be the same on all issues, unaffected by tenure (ie there are only council tenants and honorary council tenants amongst the working class) . Many of the current problems concerning the politics of housing on the Left can be blamed on past failures over housing reform . Council housing, for example, was fought for because it involved principles of collective ownership and provision on the basis of need . However, time and time again, once acceptance had been won for an increase in government support for the sector little attempt was made to implement the necessary reforms of its nature . The result is that council housing has not been able to break out of its paternalistic origins . towards genuinely collective, democratic provision on the basis of need . A massive bureaucracy has developed which decides what are needs, whose will be satisfied, what will get built, and how it will be built and financed. There is little political control over such procedures, and tenants organisations either get incorporated or mobilise over specific and usually local issues . These difficulties have been well aired and attempts have been made to overcome them . Yet the current bureaucracy within council housing provision has not developed by chance, no form of democratic mobilisation can work until the basically capitalist nature of council housing is transformed . The reform of council housing and its expansion must be a major priority of any future Left government . What is important in a socialist housing programme is that individuals can start to take control over this crucial aspect of their lives through democratically accountable institutions . With council housing, this will require a fundamental change in the social relations involved in its provision by

HO USING IN CRISIS

75

removing the role played by capital so that genuinely collective forms of provision can start to evolve . Financial subsidies will undoubtedly still be required, as the housing provided must be cheap and good if those new organisational forms are to be successful rather than dogged by financial crises and disenchantment with the new housing built . But, even if it is recognised that considerable energy must be directed towards the revival and reform of council housing, a critique of the current nature of council housing does raise principles that can be extended to owner occupation . A reformed council housing sector would depend on the existence of a public building agency (or agencies) . Public takeover of private housebuilding could extend similar principles to owner occupation . The nature of the tenure could be completely transformed in this way and, with it, there could be far greater public accountability without alienating every owner occupier . State provision of new owner occupied housing would necessitate the nationalisation of land . In this way, house price controls could be introduced, the type of housing built controlled, and existing owners future money gains effectively taxed without wiping out new building . Meanwhile large surpluses (from land gains) would accrue that could partially be diverted to other tenures . Households would still be owners enjoying the benefits of personal independence and security that many people at present feel only ownership can give them (partially as a reaction to the state commandist aspects of council housing to date) . Moreover, existing owner occupiers do not have to be expropriated nor incur any money loss . (The latter would be a political matter of taxation, independent of the new structure of provision itself.) What necessarily changes for the consumer are the financial aspects of owner occupation, which change as a consequence of removing the tenure from the private market and the speculative interests that dominate it . A gradual blurring of the distinction between ownership and renting could be envisaged once market criteria are no longer overwhelming . Tenure and how housing is paid for could become of less importance to households than styles of living and choices of built form . These proposals are ways of maintaining the formal definitions of house rental and ownership whilst transforming their content . There is little need to get programmatic here, details should anyway be the product of practice not dictat, and experiment in different forms of provision must be encouraged . It will suffice to suggest that only through land and building industry nationalisation can the preconditions exist for the transformation of housing provision . In this way it is possible to get a unity across housing tenures of progressive forces amongst consumers of housing and amongst building workers as producers of housing . To many this might sound like pie-in-the-sky idealism . But the collapse of the current structures of housing provision has no parallel since the demise of the structure of private rented provision in the early years of this century . That earlier collapse created the political opportunity for mass council housing, the current one is doing the same for dreams like mine .

76

CAPITAL & CLASS

Notes 1

2

3

4

The March 1982 Budget announced an increase in council housebuilding compared to the data given in the text . It was an exercise in political window-dressing unfortunately to be financed by extra revenue from council house sales! More generally it is difficult to compare the most recent 1982 expenditure plans (Cmnd 8494) with earlier ones as the figures are not given in constant price terms . So a guess at the assumed inflation rate has to be made in order to convert the figures to real terms . The Association of Metropolitan Authorities have argued that the cut next year is planned to be £741 million, a further 20 per cent drop, which they reckon will mean even less council housebuilding (Guardian, 5 .4 .82 .) . There are unfortunately insufficient published data available to make an accurate assessment of this shift over the past decade . Successive governments have been remarkably coy about the aggregate effects of the tax reliefs on owner occupation . Social relations define the structural location of any social agent . The most obvious in capitalist societies are the antagonistic class relations of capital and worker . The analysis of the social relations involved in housing provision, however, has to go beyond broad categorisations at the level of class to differences within classes (eg types of capital) or to types of social agent whose class location may vary (eg not all landowners are capitalists) . A useful way of categorising the social relations involved in any type of housing provision is to specify the different functions involved in providing housing and then identify the class locations of the agents performing those functions . For modern owner occupation in Britain the social relations involved would centre around landowners, speculative housebuilders, building workers, the surveyors, estate agents, and others operating in the owner occupied market, mortgage financiers, the state as land-use planner, infrastructure provider and legislator, and owner occupiers. Elsewhere this approach to the analysis of housing has been argued to centre on the specification and analysis of structures of housing provision (cf. Ball, 1981) . 'Front-loading' describes the effect of inflation on the real incidence of debt repayment . High rates of inflation and interest mean that a large proportion of the total cost in real terms of money borrowed to finance council housing is concentrated in the early years ; a characteristic made worse by the length of time local authorities pay back housing debt (60 years) and the rescheduling of loans used to finance it .

Figure 1 : Housing

output in the U .K . 1969-81

350 300 250 200 150

∎ 16 ,

hh

Pj16q,111 10%

Private

,

N

100 Public

50 1969

Housing completions U K'000

Source: Housing

1981

and Construction Statistics, HMSO

77

HO USING IN CRISIS

References BALL, M . (1981) The development of capitalism in housing provision International Journal of Urban and Regional Research

DICKENS, P . and GOODWIN, M . (1981) The political economy of Sheffield's council houses. Paper presented to CSE Housing Workshop, May 1981 DIRECT LABOUR COLLECTIVE (1978) Building with direct labour, CSE, London DIRECT LABOUR COLLECTIVE (1980) Direct labour under attack, CSE, London DONNISON, D . (1967) The government of housing, Pelican, London HCEC (1981) Third report of the Environment Committee, Session 1980-81, HC 383, HMSO SAUNDERS, P . (1979) Urban politics, Hutchinson, London WRIGHT, E . (1978) Class, crisis and the state, NLB, London

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Vol I No 2 (Winter 1982) World Economy : The new resource wars . Area report : Brazil . Company report : Companhia Vale do Rio Doce and Krupp - two giants in the iron and steel industry . Special report : The Grande Carajds and the internationalization of the Amazon - the first in depth critical analysis of the world's most important resource project in the 1980s . Military : Modem Metals and the War Industry . Interview : Maurice Nyagumbo, minister of mines, Zimbabwe . Book reviews : Basic reading on minerals and forest markets . The following issues of Vol 1 will focus on resources policies and transnational power in Southern Africa, Canada and South East Asia, the struggle for the riches of the seas etc .

Vol 1 No I (Autumn 1981) World Economy : The realities of the New International Economic order - analysis of conglomerate power . Area report : Australia - behind the minerals boom. Company report : Mitsui - anatomy of a Japanese transnational . Special report : The rise and fall of Swedish iron ore mining . Commodity report : Iron ore .

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The Information Technology Industry in 1981 Mike Duncan

Introduction

The information technology industry, fed by the developments in microelectronics, is hailed as a shining example of economic growth in economies which are, at best, stagnant . While the gross national product of most Organisation for Economic Cooperation and Development economies declined in 1981, output in many sectors of the computer industry was growing by 30% . In the UK, however, the major computer manufacturer, ICL, was nearly bankrupt in 1981, and this was not just a UK aberration on the international scene of otherwise uncomplicated linear growth . This survey of the international computer industry looks at the worldwide crisis gripping the main sectors of the industry, situating ICL's weakness within a bigger picture . Other manufacturing industries have been the subject of valuable and extensive analysis for some years . Work on motor manufacturing, for instance, has figured heavily on CSE Conference Agendas . Yet the computer industry, perhaps because of its abnormal growth when stagnation is the norm, has not been subject to the same level of analysis . Equally, the impact of microelectronics has been debated for some time but the capital and labour making up the computer industry, the clashes in world markets, and its financial structure have not been subject to the same analysis . Given the growing importance computer technology has as a vehicle to change production methods in all other branches of industry and the office, it is important for socialists to begin their analysis of the industry that produces it . The industry has some unusual characteristics which have been formed by a combination of capital, labour and technology which will become increasingly evident in other sectors, thus providing important pointers to developments in other industries . The world computer industry is made up of four sectors . At the

INFORMATION TECHNOLOGY INDUSTRY

79

beginning of the production process of computers are the chip manufacturers . They design, make and sell chips from which processors are made and provide memory within complete computers . Then the system vendors take the chips and build them into computer systems, writing control programs to process the data . The system vendors may be making small computers, like the personal computers supplied by Apple, large scale mainframes like Univac, or a band of systems like ICL . The third sector comprises companies that perform only part of the task of implementing a complete computer system . For instance, companies write programs to run on computers and sell them to users ; others make storage units to fit onto IBM's computers and other companies concentrate on communications . The fourth sector of the, industry is made up of computer services companies that process customers' information or fulfil a consultancy role . This article concentrates on the chip manufacturers and the system vendors . They dominate the structure in which the other two sectors operate and provide the most homogeneous picture . The chip manufacturing industry, in particular, has experienced its worst crisis in 1981 since it emerged from the electronics industry in the 1960s . By unthreading the basis of this crisis I will be raising some questions about the relationship between crisis in the overall economy and crisis in an industrial sector . The crisis experienced by the chip industry in 1981, which continues today, was partly of its own making and was not entirely transmitted into it from the economy around it . I am not satisfied that we understand how crisis is transmitted into and out of industrial sectors, apart from our understanding of the role of the state and of credit . From the analysis of the chip industry, and the second section on the uneven development of manufacturers of complete computers, some connections between the sectorial crisis and the larger crisis can be sketched . This survey then goes on to review the inter-imperialist rivalries the crisis has triggered and finally looks at the position of ICL as one of the weakest capitals in the international market . The Crisis of overproduction for the chip industry

At the end of 1981 the world's digital chip manufacturers should have been able to look back on a decade of continuous growth set off by a major breakthrough in chip production that thrust their industry to the forefront of economic development . In November 1971 the first advertisements had been placed in the US trade press launching the first complete computer processor on a single chip . That chip, dubbed the 4004, was manufactured by a small and fast growing company called Intel in its California factory . Until the 4004 was developed even the most rudimentary and slow computer processor was made up of a number of chips, because the number of active electronic components that could be placed in the 33 square millimetres of the chip were not enough to perform the necessary tasks . But instead of celebrating the tenth birthday of the 4004 the managers of the chip companies - Intel included - were, at the end of 1981, wrestling with the biggest crisis they had yet faced . The crisis was not one of technology - the techniques of putting

80

CAPITAL & CLASS more and more electronic components on a chip were far from reaching their limits . The crisis was not in the relations between capital and labour - the labour force in the industry is almost totally non-unionised, scattered across the world, fragmented and largely docile . It was, instead, a crisis of overproduction which had launched a series of price cutting moves, lowering the turnover and profits of major vendors . In 1980 the US market for chips stood at $4,093 million, according to the US magazine Electronics . It rose only 1 .5% during 1981 to $4,154 million, actually shrinking in real terms because of dollar inflation of 9 .6% . In Western Europe the market slumped further, by 10% to $1,115 million . In Japan alone it grew by 19% to stand at $2,234 million . World chip markets fall into three main divisions by type of chip memory chips, chips to make up a computer processor and chips which are a complete processor in themselves . There are also `three main divisions by geographic area - the US, Western Europe and Japan . The largest market in two out of three geographical areas and the product for which new production techniques are most regularly developed on a mass scale is the market for memory chips (see Figure 1) . These chips are used in all forms of computers, from the personal computer through the mini to the mainframe to store data and retrieve it fast . A personal computer may have eight memory chips to take the program data and a pair of special memory chips with programs written by the vendor embedded into them . A small business system, on the other hand, would have 128 general memory chips to provide a standard size of store and eight or ten specialised memory chips to carry the routines to control the computer . The world market for memory chips, according to a survey conducted by the US Electronics magazine, was valued at $2,740 million in 1980 . This market dropped to $2,636 million in 1981, a decline of 3 .8% before taking into account the dollar inflation rate of 9 .6% . A lot more chips were sold in 1981 than in 1980 with a lot more memory capacity but the cost of each chip was pushed down during the year as manufacturers cut prices in an attempt to get a bigger slice of a static market . In the US the market drop was 6%, in Western Europe 22% - but in Japan the memory chip market expanded by 18% as a result of the rapid expansion of Japan's computer building programme . The drop was most evident in Western Europe because demand weakened more sharply than in the other markets, leading to some sharper price drops as manufacturers manoeuvred to gain market share . The 18% expansion was also evident in 1980 to 1981 in the Japanese market for the many types of chips that go to make up mini and mainframe computers . Both these types of computers have several chips making up the processor as against the single chip that the microcomputer has . In Western Europe the processor chip market dropped 7%, the same drop as in the US . The chip products that expanded in all geographic markets were


81

those that provide a complete processor on a chip as the basis of microcomputers . New technical developments are often initiated in producing memory chips because they have a regular layout of components on them and the largest potential market by value. Once new production techniques are proven in memory chip production then the more varied pattern of components to make up microprocessors are developed . Microprocessors, a single processor on a chip, and microcomputers, where a handful of chips make a complete system, grew 35% in the US and 31% in Japan . The US market, where Apple, Commodore and Tandy predominate in a young market, is over twice the size of the Japanese market where consumer electronic companies, like Sharp and Hitachi, are leading . Despite this pocket of growth the whole market for chips was depressed in 1981 in as far as it did not grow at the 20% to 30% which it had done in the period 1975 to 1980 . To look at how this had happened and its effects on the manufacturers the next section looks at Intel, the company that launched a computer on a chip in November 1971 and one of the companies hardest hit by the crisis in 1981 . FIGURE 1 :

The Three Major Chip Markets 1980 and 1981 US

JAPAN 1980 1981

WEST EUROPE 1980 1981

1980

1981

Total sale of digital chips $ million

4,093

4,154

1,872

2,234

1,242

1,115

Chips to make mini and mainframes

1,313

1,216

464

550

691

640

Microprocessors and microcomputer chips

614

826

277

364

158

159

1,862

1,753

522

616

356

277

304

359

609

704

37

39

Memory chips Other digital chips

Source: Electronics, January 1982

Intel : A case study in crisis

Intel was formed in the late 1960s by a group of engineers who had broken away from the contemporary leader of chip development Fairchild . The founders of the company were male but within a short period of time the majority of the workforce was female, as an historic photograph of the whole Intel workforce from the founders CBC 17 - F

82

CAPITAL & CLASS down shows . The key team of designers laid down plans for making chips which would hold more circuits than any then available on the market and established their production plant in southern California . Besides the support staff for the administration and design process, their first employees were women from the surrounding area, which was still mostly devoted to agricultural production . These women worked in sealed cabins used to create a dust free atmosphere in which, by successive steps, layers of circuits were etched onto a base of silicon . The more compact chips Itel began to produce allowed equipment builders, especially the calculator manufacturers, to use less chips to provide the computer power necessary in the product . To make up the actual processing section of the calculator took four Intel chips instead of the contemporary standard of six or eight. The Japanese calculator contract generated the first profits for Intel in 1971, by which time $2 .6 million had been sunk into research and development, $2,905 million into fixed assets of property, plant and equipment and $10 million taken up in shareholders equity . This investment generated a profit of $900,000 on a turnover of $9 .4 million from seven products . The ratio of profits to total assets was 6%, and the 500 workers each produced a profit of $1,828 . As Intel was building expertise in semiconductor production through its contracts with Japanese manufacturers it was, at the same time, designing new production techniques which would generate new products in the early 1970s . The new product was its simple computer on a single chip . The 4004 was produced with techniques which could put about four times the number of circuits on the same 33 millimetre square chip as the industry's then current standard . Although the development of the single chip computer was lauded as the work of a single young scientist working in Intel's laboratory, it had been the aim of the founders of the company since its inception . By late 1971, Intel had a production process and a product with which it could reap superprofits by pricing the product considerably above production costs yet still well below the total cost of the four or six chips that were needed from any other supplier to make a rudimentary computer . The effect on Intel's profitability is clearly seen from the bottom line of Figure 2 which shows Intel's profits to asset ratio rising steadily over the period 1971 to 1974 . In 1974 Intel made a total profit of $19 .8 million generated from total assets of $75 million, a profit to asset ratio of 26% . Intel had done this without any long term debt, on a shareholder's equity of $50 million generating a turnover of $134 million . The number of workers now stood just over 3,000 and the profit generated by each worker was just over $6,300 . 1974 was the high point for Intel, a point which it has never been able to achieve again . In late 1974 and through 1975 other chip manufacturers counterattacked and more productive capacity was laid down in the industry than the market could absorb . Despite an increase in assets of over 25%, mostly in current assets, Intel's profit dropped in 1975 and profit to assets fell back to below the ratio of 1973, the year before the peak . This drop in profits was directly related to the Intel management's


83

response to oversaturation in the market which led it to drive the price of its products down .

FIG URE 2: Intel : Boom, and bust? 50%

45

A Fixed to total assets %

40

35

30

25%

20

15

• Profit to assets %

10

5

0

Years 1971

'72 '73

'74

'75

'76

'77

'78

'79

However, continually dropping prices in the market over a period of time did lead to an expansion of the potential market for chip producers experienced between 1975 and 1980 . First it became economical to replace earlier generations of equipment with computer control systems, such as the replacement of electro mechical cash

84

CAPITAL & CLASS registers with electronic registers . Second, the falling price of chips could be incorporated into the products of the system vendors who, in their turn, could drop prices to expand their markets . As more complex software can be loaded onto the cheaper and faster chips, new areas for computerisation are opened up . Thirdly a new wave of computer companies was formed in the mid 1970s to take advantage of the cheaper components through personal computers, the leading example being Apple which had a turnover of $75 million by the end of 1979 . By 1981 the price of a personal computer bought through

FIGURE 3: Intel - a chipmaker's experience of the crisis of 1981 Financial results for nine months to Sept . 30 1980

1981

Turnover

$216 million

$203 million

Profit before tax and interest charges or income

$ 48 million

$ 9 million

Net Profit

$ 24 million

$ 10 million

Total Assets

$752 million

$848 million

Profitability Profit before tax etc/ Total Assets

6 .4%

1 .06%

Fixed to Total Assets

39%

54%

Shareholders' equity to Total Assets

54%

57%

mail order had dropped to £79, as opposed to the $750,000 spent on the pioneering Univac 1 in 1953 . Fourth, new applications in telecommunications, for phone exchanges and transmission equipment, were opened up as more and more telecommunications switched from analogue to digital signalling, itself a product of the more rapid decrease in cost of digital circuits compared to the circuits to handle voice signals . These four special factors, combined with the general economic expansion experienced by the OECD countries in 1976 to 1977 pulled the component sector out of its crisis ; as a result in 1976 Intel's profit


85

to asset ratio marginally increased . The sector had, however, changed as a result of the actions it took during the crisis such that another crisis was soon to break out . The major change was that the ratio of fixed to total assets increased from the 1971 to 1975 level of between 25% to 30% to rise as high as 45% in 1978 . Intel continuously increased the organic composition of its capital in the pursuit of profit but was only able to tread water . While absolute profits continued to rise from $16 .3 million in 1975 to $96 .7 million in 1980, the ratio of profits to assets declined, rose temporarily in 1979 and dropped continuously through 1980 to 1981 . For Intel, now a mature company with over $300 million in assets and an annual research and development bill of $116 million, the days of superprofit are over . In 1980, the capital available on the equity market was no longer sufficient to supply enough cash to fund Intel's new development and in 1980 it was forced to take out $150 million in long term debt . For a brief period in 1979 and 1980 the effects of overproduction were staved off as a result of expansion of the market rather than contraction of production . IBM was unable internally to manufacture enough chip memory for its own products in house and, for the first time, bought chip memories from other manufacturers . Despite IBM's spending spree however, a new crisis of overproduction broke at the end of 1980 . Intel continued its policy of increasing volume and cutting price to expand market share and earn profit through greater turnover . The effects are, however, clearly seen in the first three months of 1981 when Intel had a profit of only $2 million compared to $24 million in the same period of 1980 . The absolute amount of sales also decreased, by about 8%, a sign that the tactic of higher volume had been undermined by the tactic of lowering prices in a market where demand was low .

Transformation The first quarter returns of 1981 for all the chipmakers reflected the crisis as profits fell back . The demand from the computer industry and the new markets opened up on the 1977-80 period of expansion was not enough to absorb the volume of production in the latest chip technology, now represented by the memory chip which could store 65,536 binary digits of data . The crisis accelerated, or triggered, three developments which changed the structure of the semi-conductor sector, affecting labour, products and capital . Silicon Valley in California has been the centre of most of the chip production done outside the vertically integrated companies IBM and Texas Instruments . An agricultural community has been turned into a major manufacturing area in just 20 years . The pace of development has been fastest in the last decade which covers the period when a simple processor could be put onto one chip . Most of the capital intensive manufacturing processes in chip production are performed in the valley . Then the chips are flown out to Far East assembly plants to be mounted onto their carriers so that they can be

86

CAPITAL & CLASS loaded onto printed circuit board . Recently, increasing land costs and some marginal constraints on labour have led the major manufacturers to look elsewhere in the metropolitan countries for sites in which to place their capital intensive manufacturing . The US provided alternative sites with local Government keen to attract the high growth business of chip production and the associated industries . Oregon and West Virginia joined Florida in offering incentive packages of tax breaks and subsidised land . Outside the US Ireland and Scotland entered the bidding with incentive packages . As well as changing the location of their labour, the chip producers also shifted patterns of production at the expense of labour . Temporary lay offs became commonplace towards the end of the year with extra, enforced and often unpaid holidays . The major public holidays of Thanksgiving in November and around Christmas were surrounded with layoff days as production was cut back, directly affecting the take home pay of production workers . On the other hand, in order to force the cycles of product development and of cash within the company round faster, design teams and office workers were put on a longer working week . Intel increased the working week from 40 to 45 hours for these categories of workers without extra pay from the fourth quarter onwards . As a result of the industry having no labour organisation, the changes in work were swiftly implemented through management directives . The crisis was also felt by workers employed by chip makers outside the metropolitan countries . In the periods of expansion the chip makers have hopped from one south east . Asian country to another in search of cheap labour for the bonding process . Loading the chips onto their carriers is painstaking work, done mostly by women working with the chips and carrier under a microscope . As volumes of demand dropped in 1981 many workers taken in from the rural economies for their first taste of wage labour were ejected out again, just as a previous group of workers had been in 1974-76 . These effects on labour were matched by cuts into research and development which will have an accumulative effect on the technologies available for information technology in the early 1980s . The most dramatic example was the abandonment of the development of bubble memories by all but one US company . Bubble memories, a storage method in which bubbles of a gas are suspended in a solution with a magnetic charge, would have provided an intermediate memory device standing between the fast and dense chip memory of the central processor and the slow but cheaper memory on disc and tape . Bubble memories are easy to incorporate on a printed circuit board along with the chips for the processor and faster memory . Small volumes of bubble memories had been in production for five years and had been used in portable terminals made by Texas Instruments .


87

The cost of developing bubble memory production to volume levels proved too much for all the major manufacturers bar one as, while the squeeze was on profits, the time in which bubble memory development could return a profit was considered too far away, given rising interest rates and falling demand for standard products . Substitute products were available - but only at a higher price if chips were used or a lower speed if disc storage was substituted . Product manufacturers `down stream' from the component manufacturers had to redesign their products incurring increased costs which will be further forced down stream to the customer . In 1981, therefore, the geographical location of labour began to change at a faster rate and the technology produced by the semi conductor sector changed as a result of the crisis . The third major effect of the crisis of overproduction was that manufacturers that could obtain cheaper credit were in a significantly stronger position than those that could not . This general characteristic is heightened in the computer industry because of the capital intensive nature of production . The major result was to strengthen the hand of those manufacturers which were divisions of larger groups and of those in economies where interest rates were temporally or historically lower for industrial credit . The biggest beneficiaries were the Japanese manufacturers which were both parts of large electronics groups and were members of an industrial block which include a leading bank . The ratio of shareholders' equity to total assets in Japanese manufacturing is generally lower than for US and Western European companies . In the US 50% to 60% is the norm, in the UK 50%, West Germany has an average of 35% to 40% while it was 20% in Japan during 1980 (Bank of England Quarterly Bulletin, December 1981) . With such a large role being played by the stock market in the raising of funds by US companies, the short term quarterly return and dividend payment has been given a strong priority . In Japan, however, while being able to use funds at a lower interest rate during 1981, manufacturers had the added advantage of being able to pursue more long terms goals in investment because the demand to return to public shareholders every quarter is not as strong . Significantly the major decisions to axe or cut back research and development, and the major pricing moves, are all made by US companies around the financial quarter ; in most cases it was the second financial quarter of 1981 that prompted the cuts as those results showed that the crisis had not lifted but had deepened under the tutelage of the new Reagan administration . At the beginning of the year most manufacturers in the US predicted that the crisis of overproduction would blow over by April 1981 . The end of the crisis has now been publicly postponed until the third quarter of 1982 . The Uneven Development of Memory chips and chips to make computer processors are taken by System computer system builders as the building blocks for their products . Vendors Complete computer systems can be divided into two main types-the

88

CAPITAL & CLASS mainframe and the mini . Mainframes are the more expensive larger systems with a cost from £100,000 upwards . They have a more traditional architecture which has evolved from the early stored program computers of the late 1940s . Minis are smaller and tend to be less powerful . They grew out of computers specially built for testing electronics and running process control systems . Apart from the Japanese, mainframe vendors have been supplying the computer market since the 1950s . IBM dominates the mainframe market shipping 58% of the world's mainframes in 1980 . The secondary suppliers, Burroughs, Honeywell, ICL, NCR, Univac and Control Data have a continuous struggle to survive in the US and West Europe market and in Japan against IBM and the Japanese vendors . Last year was characterised by an unfolding financial crisis among the secondary mainframe suppliers . The main characteristic of 1981 in the mini market was the consolidated domination of Digital Equipment Corporation (DEC), a mini vendor established in 1957, based in the East coast of the US . DEC's dominance was earned at the expense of the second league mini vendors, US companies established in the 1960s like Data General and Prime, who were having trouble developing and marketing a new generation of systems in the face of DEC's leadership . As well as being affected by the general business cycle, transmitted through the price of credit and the rate of orders for capital goods, manufacturers of complete computer systems have their own shorter cycle . This system vendor's cycle runs between three and four years, the economic life of a computer system . In each new turn of the cycle, system vendors are forced to plan for higher volumes of production and assume that the market will expand . Significant changes in production methods have to be made if profit is to keep pace with the new capital investment necessary . The latest generation of chips, supplied by the chip makers, will be packaged up into a complete system with memory, storage units, printers, terminals and control software . The new production methods significantly affect the composition of the labour force, the content of that labour and its amount . The initiative capital has over labour within the computer industry means the changes come from capital instead of being initiated from labour . And the changes themselves continue the process of robbing labour of the ground from which it could mount its own initiative . Mature system vendors with an installed base of customers generate 60% to 70% of their turnover from replacing their own systems . Each mature vendor is therefore intent on holding onto its customer base while, at the same time, expanding into new markets with its new products . Once an installed base has been built up by a systems vendor in its first cycle the early stages of the second cycle are easier to achieve because replacement gives the vendor early orders . But the characteristics of the new product must include more computing power for less price, more sophisticated software and some bridging mechanism to take the users of the older machine onto

89

INFORMATION TECHNOLOGY INDUSTRY FIGURE 4:

Mainframe price/performance 1950-1980

$100 11 \

a0

10

U

Large mainframes 15% a year

H H

a.

c0

1

\ 1*1

c i

Small mainframes 25% a year

1

\

a $ •0 1

Years

1950

1960

1970

1980

Source: IBM Journal of Research and Development September 1981

the new. Greater power for less price, called increased price/ performance ratio, means that the turnover, let alone profit, generated by the same total power of the new system will be lower than the old one . To withstand the erosion of the existing customer base, vendors must offer a price performance ratio generally in line with the industry determined by the market leader in that sector IBM in the case of mainframes, DEC in the case of minis and the three personal computer vendors in the case of micros . The price performance curve is, however, dropping faster than the expansion in demand from existing customers in the vendor's portfolio - leaving a gap which has to be filled by higher volumes of production and sales, reinforcing the process of competition between the companies for a larger market share . The large system price performance drops 15% a year and the market is expanding at 12 .6% a year . For example, a system builder launches a processor which

90

CAPITAL & CLASS FIGURE 5 :

System Vendors Cycle Relative position of IBM + ICL main products at the beginning of 1981

0

5

months

10

15

20

25

months

30

35

40

45

50

months

performs one million instruction a second . It sells 1,000 systems over its economic life of 36 to 40 months giving it a total installed power of one billion instructions . The price of the processor was £500,000 giving a total turnover of £500 million . During the life of the system the price/performance ratio comes down exponentially : when it was launched the processor was on the ratio of providing an instruction a second for 50p whereas at the end of its economic life the industry standard had dropped to 20p an instruction a second . The new system that the vendor is developing would have to be built to provide about half as much again processing power as the old one, about 1 .5 million instruction a second . To fit on the industry price/performance curve so that customers of the old system will almost automatically order the new system it will have to be priced at

91


£300,000 - 1 .5 million times 20p . At £300,000 just over 1,600 such systems would have to be sold to retain the previous turnover level of £500 million from the system . The existing user base of 1,000 will therefore have to be expanded by 600 new customers .

FIGURE 6:

Mainframe shipments and market shares by value 1977

IBM Plug compatibles Burroughs Control Data Honeywell NCR Univac ICL

1980

Worldwide Shipments

UK installed

Worldwide Shipments

UK installed

65%

39 .5 %

58%

34 .9 %

7% 7%

.22%

19%

1 .65%

6 .4 %

3%

5 .7 %

5% 9%

1 .8 %

2%

1 .6 %

8 .9 %

8%

8 .2 %

2%

1 .4 %

3%

.89%

5%

4 .9 %

7%

7 .95% 37 .0 %

35 .5 %

Sources : BIS-Pedder, Business Week, Gartner Group, International

Data Corporation .

This example illustrates the drive for expanded market share manufacturers must mount at each turn of the vendor's cycle . With 15 companies in the world making mainframe computers alone each one of them is trying to price its systems just under the current price/ performance curve to gain that extra part of the market . Thus each contributes to pulling the curve down still further. Their contributions are not, however, equal . IBM sets the overall pattern under which other vendors have to price their equipment. The competition is most direct in the market for IBM-style computers where a number of vendors make processors which will run like IBM's . There the competing manufacturers often just announce that their system will be cheaper than IBM's instead of fixing a price when announcing the introduction of a new system . The other mainframe system vendors with their established architectures - ICL, Burroughs, NCR, Honeywell and Univac - do have fixed prices but ones that are determined by the price/performance curve every bit as

92

CAPITAL & CLASS much as those compatible to IBM . (See Figure 4 Diagram of IBM's performance curve page 410 IBM J of R & D Sept 1981 .) If they are significantly over the standard price performance ratio, as, for instance, ICL was for a time, then their installed base of customers will be under attack, jeapardising the 60% to 70% of business that comes from replacement . System vendors did not start supplying computers at the same time . They entered the industry from different routes and therefore are often on different points in the system vendors cycle . At any one time, therefore, the picture of all the system vendors shows an uneven pattern of development with them spread across the vendors cycle depending upon their individual histories, the age of their main system product and their competitive position relative to the dominant force in the systems vendor's section . The cycle may be longer for a manufacturer where competition is low as it is for computers that are designed for very high reliability . The cycle will be shorter where the competition is high, as in the case of personal computers . The whole scale of the cycle will be shifted up or down by the general business cycle ; the height of the peak depends on the particular circumstances of that system's vendor . Developments in chip production feed into the cycle for system vendors . First, computer memory can be offered at a cheaper price with each new generation of product . Second, the greater complexity of the chips produced by the chip makers to go into processors mean that more components can be placed on the same area of silicon, therefore cutting the delay in signals running through the processor and increasing its speed . Third, fewer chips go to make up a processor so that it has fewer connections from the chip through a printed circuit board and then through internal cables ; as chips are inherently more reliable than printed circuit board connections or cables then the reliability of the whole system goes up, reducing the maintenance cost . These cuts in the prices of components do not, however, make up the whole cut in price the system vendor has to achieve to set off another cycle . As the price of chips drops, in fact, they take up less and less of the total cost of the system . From a high point of about 70% of the system cost in the late 1960s, components now take up less than 30% . A halving of the component cost today will, therefore, only pull the price of the system down 15%, and then next time around by 7 .5% and then by only 3 .75% . The gains in productivity that system vendors have to achieve to stay in the business therefore must come from changes in production techniques, enforcing changes in the labour processes of the workers . An analysis of the labour processes in system building will show how much labour is dominated by capital and the different stages of development of production . The first stored programme computers, built in the late 1940s, were made one at a time by male electrical engineers who had been

INFORMATION TECHNOLOGYIND US TRY

93

involved in the process of design and went on to test the system . By the late 1970s, however, sexual and international divisions in the labour force had been used to turn these pilot production processes into highly organised methods of batch production . As vendors have gone through product cycles in the last 15 to 20 years the work force has been changed from largely skilled males, working in teams, to unskilled women and minority men, working on assembly lines . Patterns of work change from long homogenous rhythmns performed largely under control of the team to repetitive tasks on an assembly line . This shift in labour processes has been furthered by chip developments themselves (as so much of the complexity of a computer that used to be assembled by the systems vendor is now implanted on the chip and only needs simple assembly) and brought about by the drive for volume production which is the only way to generate sufficient profit . Low volume lines, for big processors, have more men on them earlier in the production process, so that the team method takes over from batch assembly earlier in the production cycle of the product . In contrast, high volume production, of smaller mini processors or visual display units, for instance, has much less team male production in it and a lot more individual women working on shifts on a moving line or with batches . As we have already seen in the section on the chip industry, semiconductor manufacturers are putting more and more circuits onto a chip so that a single chip now contains as much as used to be on a complete board of components in the previous generation of technology . As a result integration and test procedures are shortened, leaving less for the male team to do than on previous production lines and demanding less skill from the workforce . A dramatic example of the effect of this process is that a new plant for the manufacture of large computers in Japan was established in 1981 by Fujitsu . According to internal Fujitsu figures they were able to transfer 33% of jobs from engineers to what they termed ìnexperience' workers compared to the plant that was replaced . A total workforce cut of 18% was also effected . Inter imperialist rivalries

The continuous pursuit of profits forces individual companies to raise the capital investments they make in the information technology industry . To earn profits from that high level of capital investments individual companies have to expand their volumes of production, whether they are manufacturing chips or complete computer systems . There comes a time, often sooner rather than later, that the new higher level of production cannot be absorbed by the national market in which the company was formed ; as a result companies in the information technology industry are soon forced to try and enter the world market which involves breaking into other national markets in which information technology companies are operating . Even the US market is no longer big enough to sustain a fully fledged information technology industry purely on domestic demand . The information technology industry is therefore characterised by its multinational nature as no single economy can sustain a full range of computer and electronics production . Companies facing over

94

CAPITAL & CLASS saturation of their domestic market, partly produced by the general business environment of the later 1970s and partly by local over capacity in their market sector, have regularly turned to the world market to absorb the extra production they have been forced to establish . Expansion into markets which are foreign to a company tends to occur in two phases - first imports through dealers and local subsidiaries, and then investment in manufacturing . Both forms of expansion have triggered inter imperialist rivalries between the US, Japan and the major trading nations of West Europe . These rivalries grew more intense with the impact of renewed recession at the end of the seventies and as the patterns of uneven development in systems building and over capacity in chip manufacture generated internal strain in these sectors . The role of the state in industrial and trade activity has been thrust to the forefront as a result of these increased tensions . In theory the state holds the ring for national capitals and regulates the entry of foreign capital and products . The terms on which it holds the ring and opens or closes trade pipelines has become an important issue in the information technology industry . The state has also grown to be a major user of computers given the increasing volume of information the state has accumulated in the expansion years of 1945 to 1973 . It has also gathered a lot more information as a result of the increased role of state security agencies . The role of the state as a customer, and a provider of funds for original research and development, is under debate as long as a foreign company is not able to participate with local capital as a supplier to state agencies . The increased tensions have also been sparked off by the attempt of Japanese capital, still in its early stages, to redraw the map of computer production from the relatively stable picture exhibited in the mid 1970s . Japanese manufacturers are intent on earning a larger sphere of world markets in geographic areas that they, so far, have not had access to.

The third area of rivalry has more significance for future developments than it holds at the moment . The accumulation of information and its processing is emerging as a major business in itself - whoever holds that information will therefore have a major advantage in that market . The flow of information across international boundaries is still fraught with problems because national attitudes and legislation guarding data vary considerably. The most powerful nations are demanding a free flow of data in the same way that they want `free trade' in goods, while those nations which have concerned themselves with the privacy of their citizens are trying to legislate to give their citizens some security from commercial databases . The next section looks at these three growing areas of tension and places the major events of 1981 into the overall context of inter imperialist rivalries in the information technology industry .

INFORMATION TECHNOLOGYINDUSTRY

95

The Role of the Inter imperialist conflicts in the computer and electronics industry State have surfaced in major areas during the 1970s and none of them has been resolved finally . The first conflict has centred around the role of the state as a purchaser of equipment, a source of funds, a trainer of personnel and a regulator of its domestic market through its powers to erect barriers to entry to a national market . As US companies have gone through their first phase of expansion, characterised by export of finished products from home manufacturing plants, competitors in the national market which is being penetrated have regularly turned to their nation state for support . The most frequent support they get is the assurance that the central organs of the state, at the very least, will only purchase crucial types of computer equipment from domestic manufacturers . Such a programme was immediately adopted by the British state when it aided in the formation of ICL in the late 1960s . All central Government computers were to be bought from ICL and local authorities and educational institutions were, in their turn, urged to purchase ICL equipment by the state controlled funding agent . The Ministry of Defence also has a mandate to `maximise the British content of computer systems' . The US Defence Department also has a mandate to purchase only from vendors with manufacturing capacity in the US, a regulation which virtually rules out most of the non-US owned manufacturers of electronics and computers . Conflicts within the state periodically erupt over such policies . Purchasing agencies have been quite willing to pay a higher premium for nationally manufactured components and systems as long as their own budgets reflected the necessary increased expenditure . But as part of capital's response to the crisis has been to cut back on state expenditure instead of increase it to provide demand, so many state purchasing agencies which are not specifically tied to `buy national' policies have been making systems purchases elsewhere if the price is advantageous . An example is the Civil Aviation Authority which is requiping aircraft traffic control systems in the UK . In 1980 a large contract for computer based radar was placed by the CAA with a subsidiary of the Dutch group Philips in defiance of the demand by UK manufacturers that the order should go to them . Although the Ministry of Defence liases with the CAA its actual controlling Ministry is the Ministry of Trade, which has given greater priority to value for money on an individual order than to an evaluation of the British content of the bid . For its own use the Ministry of Trade had at the time to place orders for computers above a medium size under a single tender with ICL . The obligation does now however stretch to agencies which report to the Ministry . Within the European Economic Community, the position changed dramatically at the beginning of 1981 . Under new regulations in force from January 1, 1981 no single member Government can favour its own national suppliers over those of another member

CAPITAL & CLASS

country . The regulations are an attempt to bring the European owned computer industry into line with the general provisions of the Treaty of Rome, the legal attempt to create a unified market and so to reap the advantages of a single large market enjoyed by US manufacturers . They reflect a recognition that the European computer market has been fragmented for so long into separate national markets, that no western European manufacturer has been able to gain the market size with which to fully compete against the US and emergent Japanese giants . The EEC's action has only taken the conflict onto a higher plane and not shelved it . In the first place the definition of a European manufacturer is still under debate . The industry section of the European Commission has defined a European computer manufacturer as one that makes strategic decisions about supplying the European market in Europe and has a large base of manufacturing within member countries . Such a definition, which avoids mentioning where the ownership of the company resides, accepts the European operations of IBM, the US owned manufacturer, as a European computer manufacturer . Since the mid 1960s IBM has expanded in Europe through investment in manufacturing to the point that 95% of the computer system hardware sold by IBM in Europe is made in Europe . The proportion is, in fact, higher than that for many European owned manufacturers who are dependent to a large extent on the US supply of sub systems, such as disk drives and printers, to make up their complete system . IBM has over 50% of the domestic market for medium and large computers in each of the European countries in which it operates, except for the UK where its split is about 35 % . It also makes strategic decisions about pricing and location of manufacturing within Europe through a European coordination group in Paris . IBM is not the only US owned manufacturer which has slipped under the net the European Community has allowed member states to erect around their own computer purchases . Several European component manufacturers, for instance, have joint operations with US multinationals so that they can gain access to vital technologies . The French chip manufacturer Matra has an agreement to purchase a particular chip technology from the Florida based company Harris . As part of this agreement the chips manufactured by each company will be taken and supplied to the market by the other as if it was its own . Chips manufactured in Florida are therefore on the French market, and through it into the whole community market, as French chips. Tension between inter-imperialist rivalries and inter-capitalist rivalries thus undermines the attempted creation of a unified and distinct market . The particular chips that the Matra-Harris agreement covers are, in fact, increasingly being used in telephone exchange and routing systems because they consume such low levels of electrical power . These new telecommunication systems are either being made directly


97

by, or made for, the nationalised telephone authorities in each of the European Community members, authorities which, in the main, follow a purchasing policy which rates the domestic content of a bid to supply along side the price . In short, in this case, Florida made chips are shipped to Matra which then bids for the contract to supply state owned telephone authorities with chips which it says are French . The conflict between the US and western Europe is not the only interimperialist rivalry to be triggered off around the issue of state purchasing . The other is between Western Europe and Japan . The Japanese manufacturer Hitachi has so engineered its computer processors that they operate in the same manner as IBM's . The connections between the computer processor and peripheral devices around it, like tape and disk storages and printers, are exactly the same as the ones used by IBM . These `plug compatible' processors, as they are called, are purchased by Basf, the West German chemical group, and Olivetti, the Italian office products manufacturer, for sale to West European customers . They bear the badge of Basf or Olivetti, but they are manufactured in Japan and shipped into Europe . Many state authorities in West Germany, for instance, have relied on processors supplied by Siemens, the electrical gaint, which are also compatible with IBM's. Basf and Olivetti, who have yet to make any serious inroads into the processor market because they have only just signed their deals with Hitachi, are therefore free, as West European companies, to propose their processors to state computer installations that need a processor compatible with IBM's . The state agency can comply with Government regulations to purchase only equipment offered by West European vendors and still purchase a Japanese manufactured processor, with a Basf or Olivetti badge on it . The other main defence of a domestic market that has centered around the role of the state and caused inter imperialist conflict has been to raise barriers to entry which would block, through import control, major inroads into the domestic market by foreign companies . Of the imperialist nations only Japan has used this weapon .

Tensions arising from the emergence of Japan

While the expansion of US manufacturers has been the underlying movement of the computer industry since 1950, the major new development in the late 1970s was the emergence of Japan onto the world computer and electronics markets . This year has marked a new phase of Japan's expansion with the emergence of a growing alliance with the US to break down the `barriers to trade' which exists around the Western European markets organised within the European Economic Community . For over ten years the Japanese domestic market has been protected by both high import tariffs and restrictions on direct investments by US and European manufacturers . Only IBM, the dominant force in the traditional computer market, and Texas Instruments, the largest manufacturer of semiconductors for the C&C 17-G

98

CAPITAL & CLASS

merchant market, were allowed to establish wholely owned subsidiaries within Japan . Other manufacturers, like Univac, had to go into partnership with Japanese capital before they were allowed to establish production plants in Japan . Deliberately punitive import tariffs were also established for components and computer systems which gave either the domestically manufactured products an absolute price advantage or eroded the differential US manufacturers achieved through their greater volume production . Behind this double barrier the Japanese Government established a joint research and development centre, and divided the market for electronics and computers into spheres of influence for the major Japanese manufacturers. In order to benefit from the joint research, which was aimed at developing very large scale integrated chips, the individual companies had to remain within their spheres of influence . The attempt to protect the domestic market has been largely successful . For instance, Fujitsu, entrusted with the larger end of the computer market, has now, for two years running, achieved higher sales in Japan than IBM Japan . But the protection of the domestic market was only one aim of the plan . The other was to build a secure base on which to penetrate world markets in competition with the US and West Europe . The full line of new chips has not yet emerged from the research and development project but in 1980 Japanese manufacturers secured 40% of the current world market . During this early phase of emergence the major clashes were with the US . US electronics and computer manufacturers had the experience of the US consumer electronics manufacturers in mind when they repeatedly warned of the emergence of Japan . In consumer electronics the US television market came under Japanese dominance in the late 1970s and the US has no domestic manufacturer of video tape recording systems, which had a world market worth nearly $5 billion in 1980 growing at 30% a year . The US manufacturers of both chips and systems pushed, through their trade associations and political links, for a lowering of Japanese restrictions on capital imports and tariff barriers . As Japan emerged more confidently on the world market in the late 1970s these two `concessions' were partially granted through special bi-lateral agreements and through the medium of talks on the General Agreement on Trade and Tariffs . (See Figure 7) But US manufacturers who did not already have a domestic operation, in a market with not only a different language but also a different writing system, found it very costly. While Burroughs, Digital Equipment and Data General extended their operations in Japan they, and the other US manufacturers, came under pressure from both the Government and customers to produce Japanese language handling capabilities . As the official Japan Information Processing Development Centre said in its summary of trends for 1980 `By and large, foreign companies that are marketing in Japan have not been able to respond sufficiently


99

FIGURE 7: Japan's import tariffs 1977-86 April 1979

Jan 1980

April 1981

1986

Mainframes 13 .5%

10.5%

9 .8%

9 .1%

4 .9%

Peripherals

22 .5%

17.5%

16 .1%

14 .6%

6 .0%

Parts and accessories

15 .0%

15 .0%

12 .5%

12 .5%

4 .4%

1977

FIGURE 8: Sales by Major Japanese chip makers in the US 1979

1980

1981

Nippon Electric

$70m

$100m

$120m

Fujitsu

$40m

$70m

$90m

Hitachi

$20m

$40m

$60m

Toshiba

$15m

$15m

$25m

Other

$30m

$35m

$35m

Total

$175m

$260m

$330m

Japan sales Increase

48%

27%

US Market increase

1 .5%

FIGURE 9 : European Microelectronic chip Production, Consumption and trade 1979 to 1981 1979 1980 1981 European production

$1 .199 bn

Production growth European consumption

$1 .449 bn

21% $1 .961 bn

Consumption growth

$1 .675 bn 16%

$2 .375 bn

21%

$2 .764 bn 16%

Absolute imports

$762 mn

$930 mn

Trade deficit with US

$291 mn

$323 mn

$1 .089 bn na

Source: Mackintosh Report on West European Electronics Industry, 1981

100

CAPITAL & CLASS

to Japanese-language information processing requirements' . As so much of the projected growth of the computer industry is expected to be for medium and small customers who are probably first time users, the cultural barrier is likely to prove just as effective as the financial ones which are now being pulled down . In the middle of 1981 the US and Japanese governments agreed to accelerate the dismanting of tariff barriers imposed on chips . The Japanese government made the decision in 1978 that the tariffs which stood at one time as high as 20% on the shipment price of chips, which are very price sensitive, were now a hindrance to the expansion of Japanese world trade . The tariff was pulled down to 10%, where it stood at the beginning of 1981 under an agreement made with the US in 1979 . That agreement provided for mutual tariffs of 4 .2% by 1987 . In May 1981 both sides announced that the 4 .2% level would be reached by April 1982, five years before the original target date . The move was generally, but coolly, welcomed by US manufacturers like Intel and National Semiconductor . They are eager to attack the Japanese market, worth $2,256 billion in 1979 . They are, however, conscious of the fact that Japan has been so successful in its breakout into the world market that the US has a growing deficit in its chip trade with Japan . In 1980 US manufacturers shipped $150 million worth of chips to Japan to capture 5% of the Japanese market . Japanese manufacturers captured 8% of the UK market a slice valued at $373 million. (See table) Of greater significance was the fact that the products exported by the Japanese tended to gain a large share of the markets for the most advanced chips which will become standard by the mid-1980s. The most advanced memory chip holds 64,000 bits of data ; the Japanese have 70% of the world market and have, by intense competition, driven the price on the US market from $45 a chip in the third quarter of 1980 to $7 a chip at the end of 1981 . This holds on the market, associated with the drop in price, lowers the chances of a concerted US counter attack in the biggest chip market . By the time the US Government was taking the desire of the US chip vendors to secure a reduction of Japanese tariff barriers seriously, however, the pattern of trade was beginning to shift even further in favour of Japan, (see figure 8) prompting the beginnings of a policy to protect the US market from Japanese chips . At the end of 1981 the US defence agencies began to study the possibility that Japanese domination in the most advanced memory market, the market for 64K ram chips, had reached such a level that it posed a long term military threat to the US . Separate from trade legislation, US defence agencies can activate blocking mechanisms to hold the position of US vendors in the UK market against foreign competition if they feel that continued foreign supply would jeopardise the existence of US vendors . If those vendors are forced out of the market the US would then be reliant on foreign suppliers shipping goods over long communication lines in case of war . This


101

investigation began at the end of 1981 and its public announcement was enough to give another turn of the screw to anxiety over trade . Europe's total chip market in 1981 was valued at $2,764 billion by the Mackintosh research group . European community members have a common tariff of 17% for chip imports and this tariff became the target for attack from both Japan and the US in 1981 . Instead of lauding the government co-ordinated projects which both defended the domestic market and laid the foundation for an attack on world markets, Japanese companies are now proclaiming that free enterprise played the leading role in the development of the Japanese semiconductor industry . If Europe wants to produce an industry of similar strength, Koji Kobayashi, chairman of Nippon Electric Company, argued in May, then Europeans should rely on similar free enterprise methods . Ì suspect that cooperation between government and the private sector has been somewhat over emphasised because the association and related government subsidies began ahead of anyone else,' Kobayashi said . His remarks were echoed by a leading figure in the US chip world, Robert Noyce, co founder and chairman of Intel . Noyce told the same audience in London that protective tariff barriers only serve to weaken the manufacturers they are established to protect . Behind barriers as high as 17%, Noyce said, European chip makers will rely on the domestic market where international competition has been effectively excluded . As a result they will not be able to compete in Japan and the US, which between them constitute 66% of the world market . A short term defence, he argued, will lead to the medium term death of domestic manufacturers . The Noyce and Kobayashi comments laid the groundwork for a US trade mission to the European Commission headed by the Reagan administration's top trade adviser . One of the items for discussion with the EEC will be the 17% tariff, which `still stands out like a sore thumb, representing an enclave strategy', the US Semiconductor Industry Association said as the mission left for Brussels. Rivalries sparked by international information flow

Rivalries between the dominant world forces for the chip market are not the only ones to heat up in 1981 . Another attack on European `protectionism' was launched by the relatively new chairman of Burroughs, Michael Blumenthal who was Carter's Secretary of the Treasury . Blumenthal used the forum of the world's biggest annual exhibition and conference on data processing, held in the US, to accuse European countries of ìnjurious protectionism' in the field of the flow of information over national boundaries . European countries have been passing local legislation to give some degree of protection to their citizens from the effect of rapidly expanding databanks holding personal data . To harmonise this activity (which successive UK governments have put bottom of their legislative priorities) the Council of Europe published a code of

102

CAPITAL & CLASS conduct for data protection which its member states then signed . The Council, and Governments which have passed privacy legislation, were concerned that the free flow of information across national boundaries would circumvent local legislation . The type of practice they were attempting to attack was the action taken by a US publishing operation which holds large data bases of personal information to manage its mailing list . Sweden passed data protection legislation which meant that the database of Swedish citizens held in Sweden would have to be licensed by a Government sponsored data protection authority . The holders of the database would be subject to periodic inspections by technicians to make sure the database did not hold any of the types of data banned under the legislation . Faced with this level of inspection the US company moved the database on Swedish citizens into its computer installation in Denmark which did not have any data protection legislation, processed the data there and only then transmitted the results back to its Swedish subsidiary . The Council of Europe's code, which was signed by the UK Government in May 1981, provides for the passage of personal information over national boundaries only between countries that have data protection laws . The vast majority of databases, however, are in the US and just over 80% of all processing of databases is conducted in the US . Blumenthal told his audience that the processing and storage of information are important markets of the future and that US vendors of databases and processing networks would be excluded from the markets of Council of Europe members by the new code . He therefore called for the establishment of a US monitoring force which would lobby against local protection legislation and pressure the US Government to take up the issue in world talks . Blumenthal is not, understandably, concerned with the privacy which should be afforded European citizens, but with the potential markets for US vendors of information and processing, attempting to pinch in the bud any barrier which would challenge the dominance the US has in this rapidly emerging market .

Crisis at ICL

Changes in the composition of the work force, increases in organic composition of capital and attacks on barriers to the further penetration of national markets are all responses taken by the computer and electronics industry in the last three years . Only some companies, however, have been able to take advantage of those measures and the present perilous state of ICL is in large part an indication that its options have been severely curtailed by these developments . The problems of periodic over-production even in markets which can, and have, grown 30% a year, is as much a problem for ICL as it is for Intel, despite the fact that they are in different parts of the industry . The penetration of Western European markets by Japanese companies will also weaken ICL's position . But at the centre of ICL's current crisis lies a single factor which it is now experiencing more severely than other computer manufacturer . The crisis is one of capital - ICL cannot raise the necessary amounts of


103

capital to continue as a fully fledged computer manufacturer . From the time of its foundation as the major force in the UK through merger of English Electric computers and International Computers and Tabulators in 1968, ICL's main business has been the building and selling of medium and large computer systems . These have an internal architecture bearing a close similarity to the first stored programme computers of the late 1940s . The common assumption in the 1950s and early 1960s was that by building processors with such an architecture from new generations of components, the power of these processors could be expanded to the point at which more and more work could be processed on them . In fact computer science held, for a period of time, that a processor twice the size of the current generation could process the square of the amount of work of the older processor . ICL built an installed base of computers with this type of architecture, called mainframes, throughout the UK and in those parts of the world market that were open to it as a representative of UK capital, like South Africa and Australia . While the mainframe .market expanded at sufficient pace to generate profit enough for research and development, ICL could survive with its 35% of the UK market . But the research and development necessary to bring new products into production is an absolute amount ; that is to say that if it costs £20 million to develop a new line of computers, you cannot spend £10 million and get half a product line . Meanwhile, the continuing decline in component costs brought about by the semiconductor manufacturer's search for superprofit has continually depressed the price of the capital goods ICL manufactures . ICL, along with the other mainframe manufacturers, have to produce more processors to generate the same turnover and profit ; and this greater volume of manufacturing is only obtainable at a steady and guaranteed level with greater automation in production and the corresponding changes in the composition of labour outlined above . In order to retain even current market share all the mainframe manufacturers have been forced to greatly increase capital expenditure . Between 1979 and 1980 the six mainframe manufacturers that directly compete with ICL increased their capital spending by 32% to $2,893 billion, making a gross value of plant, property and equipment of $14 .42 billion (See Figure 10) . In comparison ICL has a gross investment in plant, property and equipment of about $300 million, having added about $69 million in the 12 months up to September 1980 . ICL's traditional competitors in the mainframe market are therefore spending about $209 for every $1 that ICL sinks into new production capacity ; even the smallest competitor among the six, Honeywell, has 26% more invested in plant, property and equipment . In making these investments, ICL's competitors are chasing after a target set by IBM for machine performance rated by price . In

1 04

CAPITAL & CLASS

January 1979 IBM launched a range of computers, the IBM 4300s, with medium size and a new lower price . In December 1980 a big new machine followed, the IBM 3081, also using very dense and fast chips, which set the standard for top of the range machines . The short term response of the competition was price cutting ; the only medium term response that will ensure survival is expanded capital expenditure to achieve the same cost of production as IBM but with much lower volumes . To add to the short and medium term problems an increasing number of customers moved from outright purchase to rental or lease of computers, anticipating more new models at lower prices which they could switch to when available without having to bear the economic cost of obsolescence . Rental and lease income is stretched across the economic life of the computer, from 30 to 40 months, as opposed to direct sale income which comes in all at once at installation . In 1979 ICL generated 43% of its turnover from direct sales to customers ; as customers switched to rental and leasing this dropped to 37% . In the 1980 accounts ICL added £49 million to its fixed assets as equipment on rental to customers in 1980 : an increase of 33 % in fixed assets without a corresponding increase in profits . In 1981 ICL's cash crisis has been heightened by two new factors . The first is that the growth of the market for mainframe computers, the major products in ICL's lines, has been slowing down to 12% a year and is projected to hold that rate over the coming five years . (See Market size and growth) . That growth rate is considerably less than the 15 % growth a year that the majority of the information processing market has been experiencing for the last two years and will continue to experience for the next five years . Mainframes are a declining proportion of the whole information processing industry . Smaller computers which were first used for process control and are therefore more flexible for communications applications, called minis, will have a 22% growth rate over the coming five years while the market for desk top computers built of the latest chips on the market are expected to bring 30% growth . (see figure 11) . ICL cannot, however, switch out of its existing markets easily . In the first place it needs researching and development funds to bring the new products into the new markets . Secondly, it would have to reorientate its operations while holding onto its existing customer base in mainframes, itself increasingly under attack from the US multinationals like Honeywell and Burroughs who are experiencing the same pressures . The Tightening A major characteristic of the computer industry during the 1970s has Grip of Finance been the growing influence of finance capital on the activities of capital industrial capital . As this has happened, finance capital has in some cases, imposed an agenda of activity on industrial capital when it is at its weakest . Moreover, the interests of finance and industrial capital, while merging around the common need to secure the continuance of the dominance of capital over labour, have clashed with increasing


105

FIGURE 10 : Capital expenditures and values of plant, property and equipment (ppe) of ICL's six traditional US rivals 1980 ppe expenditure

Change over 79

Gross ppe investment

IBM

$2 .258 bn

27%

$11 .018 bn

Burroughs

$163 mn

47%

$920 mn

Control data

$147 mn

56%

$458 mn

Honeywell

$ 69 mn

64%

$380 mn

NCR

$156 mn

36%

$954 mn

Univac

$100 mn

122%

$690 mn

ICL

$ 69 mn

13%

$300 mn

Source : Dillon Reed FIGURE 11 : Market size and growth 1980-85 for eight submarkets in information processing worldwide 30%

Annual compound growth rate

25%

a

20%

0

E

v0 QQ C3

15%

c c Q

E

0 h U i

10%

lu

r Z

U

Z

a

4 0 J O

3 h O a

40% 8% 15% 8%ll%3%11%4% Relative size in the total market at 1980

106

CAPITAL & CLASS regularity over the priorities and development of the computer industry. One of the clearest examples of this clash can be found in the recent history of ICL when representatives of UK finance capital and industrial capital could no longer agree on the actions ICL should take to overcome its slump in profits . The influence finance capital has on ICL's operations stem from the change of ownership which was effected in the last three years of the decade . In 1976 GEC and Plessey, industrial capitals which had helped form ICL in the late 1960s, owned 40% of the voting shares, with the UK state having a 10% holding . The investment by these industrial capitals in ICL was described by them as a `strategic investment' where neither company extracted nor expected large profits from the investment in the short term . Plessey was the main supplier of microelectronic components to ICL and it was therefore securing a large customer . GEC, on the other hand, was generating more cash than it could either usefully invest in its own expansion or pass onto its shareholders . By the end of 1981 the three biggest shareholders were the Prudential, the Legal and General and the Post Office Pension Fund . The investment ICL's new owners had made by picking up the GEC and Plessey stakes, and by purchasing the shares put on the market by the state after the change of Government in May 1979, was not the type of `strategic investment' that the previous owners had made . The new owners needed a dividend policy to ensure a higher rate of return ; they wanted more paid out in dividends for the same investment than the industrial capitals had been willing to accept . From a dividend payment of £1 .7 million out of £23 .1 million profit before tax in 1976, dividends rose to £4 million in 1980 on a pre tax profit of £25 .1 million . This 1980 payment was the same absolute payout to investors as made in 1979, despite the fact that ICL's profit had collapsed from £46 .5 million in 1979 . Even with this expanded dividend policy, the rate of return on shareholders' funds at the end of ICL's financial year in September 30 ; 1980 was only 2 .8% . The shares stood at 105p, driven up to that level by the demand finance capital had generated for ICL shares over the preceding 18 months . The total book value of the company was £315 million at the end of the 1980 financial year, over twice the market capitalisation . But as ICL was already trading at a loss when the financial year ended, the rate of return to investors could only be increased if the share price was collapsed, writing off the majority of the value of the company . From September 1980 the price was collapsed by steady selling conducted mostly by the 559 pension funds and insurance and investment companies who owned 57% of the shares . They went as low as 32p, putting a value of £42 .7 million on ICL, producing a rate of return at previous dividend levels of 9 .4% . Financial capital had used the market to exert pressure on industrial capital but it also used its own members on the board to effect the initial change in dividend policy . A former director of Morgan Grenville and the City's member on the board, Philip


1 07

Chappell, was elevated to the position of chairman at the same time as finance capital's ownership of ICL was rapidly growing . Previously the post had been held by a representative of industrial capital, Tom Hudson, considered one of the ICL oldguard . As finance capital was gaining ascendancy over industrial capital in the running of ICL the inherent weakness for short term profit which finance capital exhibits when trying to control a particular industrial capital was taking its toll . Finance capital was continuously being assured throughout the mid 1970s that the computer industry was one of growth, ICL was in the computer industry and, therefore, said the analysts on which finance capital relied, it would grow through an expansion of its existing products. The reports, newssheets and recommendations to invest which came from the City during the period 1977 to 1979 appalled industrial capitalists in their naivete when it came to judging where the computer industry was moving . ICL's main product line in the late 1970s was a range of mainframe computers built in the UK which had been designed in the early 1970s . New product developments originated in the US, however, were using the latest chip technology to build processors with a more flexible structure than ICL's for less cost and more power . As a result ICL began first to loose its traditional hold on the UK educational market place as educational users, although hit by capital freezes, tend to move to newer technology faster than commercial users . With financial capital gaining ascendancy the alarm raised by development groups within ICL went unheeded ; after all, the dividend policy had been changed and the whole UK economy was sliding into recession so the loss of some market position was not considered as very serious . In line with the belief of finance capital that expansions of credit can provide the means of recovery for depressed industrial capital, ICL increasingly went to the debt market to finance its continuing operations while keeping the priority of focus on its existing mainframe computer range . In the mid 1970s net interest payments were about £5 million a year. As ILC drew in more and more funds from agreed loan schemes to make up the difference between generated profits and necessary expenditure, that interest payment went up to £11 .9 million in 1978, rose to £17 .2 million in 1979 and hit a peak of £23 .3 million in 1980 . By then bank overdrafts and short term loans had risen to £44 .9 million from £15 .4 million in the previous year, and medium and long term loans to £116 .8 million from £99 million in 1979 . During 1979 the aggregate rate of interest ICL was paying was 15% ; pressured both by the Government's demand for further credit and by its own weakening position, this rate rose to 16% in September 1980 . The point came, however, when finance capital would not act to support ICL any more, despite its ownership and control of major positions on the board . Indeed the City's representatives on the board, and especially the chairman Phillip Chappell, were by the spring of 1981, being personally blamed by the City for allowing the position to deteriorate so rapidly inside ICL . Chappell, and his

108

CAPITAL & CLASS managing director Chris Wilson, always argued that the crisis was short term and the loans were needed to get ICL over the hump of installing the new computers . Long after this argument was tenable, however, they were still making it in the City which, by now, realised that the equation of 'ICL= computer industry = growth' was not holding up . In the early spring of 1981 Chappell went again to the City for further capital. A share flotation was already out of the question because the share price had been collapsed and the prospects for the financial year October 1980 to September 1981 were such that there was little prospect of substantial dividend payments . The City refused to entertain any more debt . It was, however, mindful of the fact that the state has always recognised the importance of ICL if only as a supplier of computers to itself and that a collapse of ICL would cost the state £300 million to £400 million in new computers . Only if some absolute guarantee could be given for the new investment which ICL was calling for would the City provide it, Chappell was told . ICL therefore turned to the Government and, after hard negotiations under the chairmanship of the new Minister for Information Technology at the Department of Industry, the City extended ICL's credit as long as the state underwrote to the tune of £200 million . If we step back for a moment from the events of the early spring 1981 we can see some of the dominant themes in the relationship of industrial capital and finance capital in the UK computer industry . First, finance capital has greatly increased its ownership directly and, by expanding credit, extended its influence indirectly . Secondly, the conditions which finance capital then imposes on industrial capital in the shape of a higher dividend policy and the expansion of credit as the answer to crisis divert attention from the regeneration of the production processes where the crisis has been triggered in the first place . Third, while the share and debt market are the traditional methods for finance capital to transmit its priorities to industrial capital, direct management is also used to shift priorities in favour of those held by the City . Fourth, where the relations of finance and industrial capital break down to the point that they are unable to agree, as in the case of further lines of credit for ICL in the spring, the state is used both as an arbitrator and as a guarantor of the investment which finance capital is reluctant to make . To that extent the normal rules of investment, with inherent risk, are suspended by the state, while finance capital receives the interest direct from industrial capital .

Retreats cut off As Aglietta has put it : `Since institutional investors wield great blocks of shares and can pursue concentrated policies of purchase and sale, and since these funds are managed by professionals with a good knowledge of the stock market, these institutional investors are sensitive to the financial gains ensuing from mergers' (p269) . The strategy of merger in order to strengthen or rescue investments had already been taken, on the prompting of the state, in


109

the 1960s to form ICL . As the crisis deepened in the late 1970s finance capital in the UK was unable to turn to this policy because there was no other UK owned computer company of comparable size, unlike the general electronics industry where weaker units were merged . In a rating of the 500 top electronics companies in the UK ordered by turnover, ICL was in eighth place . The next biggest UK owned company manufacturing even a barest range of computers was the Rediffusion subsidiary Redifon Computers with a turnover around £13 million . Redifon ranked 185th while GEC Computers, a subsidiary of the UK's largest electrical group, was rated 265th with a turnover around £8 million . To find a UK owned company making computers which was not a subsidiary of a larger group you would have to go down to 380th place to find Systime . No gain could be made from merging a company the size of Systime with ICL and the parents of the larger general electronics companies refused, in the case of GEC, to take on ICL's problems . Industrial capital, despite being under the influence of UK finance capital, could therefore not be coerced into a merger with ICL . Nevertheless, having secured the short term with the £200 million line of credit, ICL turned to the idea of a merger as its next rescue move . A potential partner was sought overseas and found in the shape of Univac, the US owned computer company which is part of the Sperry Rand Corporation . Univac had 7% of the worldwide mainframe shipments in 1980 . While UK finance capital could not provide a suitable partner neither would it be able to control the operations of a joint ICL Univac grouping as so much of the control would pass into the hands of Univac, part of a group with $4 billion turnover generating post tax profits around $180 million . The state was also concerned that its own computer systems would be maintained by a US dominated group . The official trade union organisation feared that ICL would be stripped in the UK with production switched to the US where Univac manufactures its computers . By pursuing the discussions with Univac, to the point of discussions in principle about a merger, ICL's corporate leadership had lost the support of both the state and UK finance capital . In June 1981, both moved swiftly against this threat to their interests and through their pressure on the board, ousted the chairman and managing director, replacing them with a elder statesman of British Petrolium as chairman and fast rising manager from Texas Instruments as managing director . The merger talks with Univac were promptly called off . The state's guarantee of loans placated financial capital for the time New Management - being, as long as the new management introduced a comprehensive new tactics reorganisation plan which would lay the groundwork for future profits . The new senior management had an initiative over labour which they had inherited from the old management . Trade Union leaderships, in the Astms and Tass unions, have consistently argued for a strong UK computer industry as an essential plank in a national industrial strategy . They had gone a step further and identified ICL as

110

CAPITAL & CLASS

the core of such an industry . This analysis, informed by the Trades Union Council's economic strategy rather than by the direct needs to defend the workforce at ICL, laid the unions open to pursuasion when it came to wage freezes and calls for redundancy . A wage freeze was tacitly accepted by the union leadership outside ICL, without apparent resistance by unions within the company . Secondly, three programmes of redundancy were implemented in 1981 which took the labour force down by 30% . Small pockets of resistance at individual plants were soon overcome when national leadership failed to initiate or coordinate any action that would be effective . As in the case of British Leyland, the logic of the general economic strategy followed by the union leadership meant that they felt constrained from resistance as such a course, they feared, would bring the company down completely, leaving a massive hole in the industrial base of the UK . In the financial year to the end of September 198108 million was put aside to pay for the closures throughout the company . These closures include the shutting of a complete factory, selective redundancies in every department, and the closure of a new line of business in the manufacture of complex circuit boards . As labour seemed willing to pay the price of getting ICL out of trouble, the new management had a basis to launch new industrial policy which, it planned, would begin to bear fruit during late 1981 and early 1982 in time for a major financial reorganisation . To overcome the problem of funding research and development on new products, ICL bought in three products from outside with collaborative deals : a private branch telephone exchange from Canada ; a high powered personal computer from the US ; and chip technology as well as a large scale processor from Fujitsu, the largest Japanese manufacturer of computers . The phone exchange would give ICL a phone switch product, which it had never had in its product line, enabling it to develop a strong range of communications products, many of them aimed at office automation . The high powered personal computer would provide a workstation for scientific and technical use as well as the storage and processing capacity for an office work station . The Fujitsu chips would be used in ICL's 2900 range of mainframes to build a processor with the performance to work through about 5 million instructions a second to be launched in 1983 . The big Fujitsu processor, currently the biggest general use mainframe computer in the world, runs IBM software and is only compatible withg IBM processors . ICL's plan in 1981 was to sell communications equipment to IBM users, surrounding the IBM mainframe with ICL equipment and then also to have a big IBM compatible processor to sell for the big jobs undertaken at the centre of a user's network . Most of the new products which underpin ICL's new policy will be manufactured overseas by the supplier . In each case they are being produced by companies that have a higher productivity level than ICL, whether they be the small entreprenerial Three Rivers Company providing the workstation or Fujitsu with its Y304 .4 billion (£730 million) turnover in the first six months of its 1981-82 financial year .


111

Having secured access to some of the most productive manufacturing ICL also had to tackle the problem of software development . This it did by `rationalising' the number of operating systems for its mainframe computers into a single target product, VME2900, into which all existing operating systems, at least six of them, would be merged . The variety in the product line would be eliminated, allowing ICL to develop just one system for all occasions . As a result, the overheads for software support for all the six can be cut if ICL is successful in persuading its customers to move over to the one operating system . International expansion blocked .

Marginal adjustments can be made to the position ICL is in, but one of the likely ones has already been taken with few positive reults : it is to attack new markets outside the UK . In the early 1970s ICL made 65 % of its sales in the UK (see Figure 12) with increasing saturation of this home market, production in the UK was switched to supply growing overseas markets which had not experienced the 1974 crash as harshly as the UK had . As a result, at the high point of penetration of the world market, in 1977 and 1978 less than 50% of sales were in the UK . About 25% were in continental Europe ; Africa, Australasia and Asia, and the Americas were the other areas of ICL sales, in that order . In effect therefore a good 75% of ICL's sales were in only one of the three main data processing markets with the other two main blocks, in the US and Japan, either ignored or, as in the case of the US, providing negligible sales because of the strength of domestic competitors . From that high point, however, ICL has been pushed back to the point that, in 1980, 55% of sales came from the UK . Membership of the European Common Market has been effective only in the development of a strong operation in France, and not withstanding this, sales to fellow EEC member nations declined overall from 1979 to 1980 . ICL has therefore been unable to export the surplus of its production over domestic needs . In summary, the crisis ICL now experiences is that its current base does not generate enough capital even to continue its development of traditional processor archcitectures, let alone break into new markets where microprocessors and mini computers will provide higher growth . Capital stands at one side of the equation and labour at the other in all capitalist crisis, but the current crisis for ICL has primarily been generated by its lack of capital in a capital hungry industry ; just as when the rate of return to investors is not enough they collapse the share price, so when the crisis breaks from capital, labour must go . With the lowest fixed asset to worker ratio among the mainframe manufacturers, ICL still managed to generate $47,602 in turnover for each worker during 1980, placing it fifth among the seven mainframe manufacturers. Up to June 1981, when a further round of 5,200 redundancies were called for by the board, the workforce had accepted two attacks on their standard of living and job security in nine months without complaint . The closure of a factory in Manchester and the axing of the

1 12

CAPITAL & CLASS FIGURE 12:

ICL : where the turnover comes from %

AMERICAS

100

ASIA + AUSTRALIA 90 AFRICA 80

70 CONT. EUROPE 60

50

40 UK 30

20

10

0 Years

'73 '74

'75

'76 '77 '78 '79 '80


113

graduate intake even before it had taken up the posts was accepted by the Union rank and file in 1980 . And in 1981 the rank and file also accepted a freezing of wages to hold back costs . Workers in manufacturing at ICL are unionised, as are a lot of the clerical workers, but there is hardly any unionisation among the marketing and sales forces . As a company ICL was caught out in the open by the slump in 1980 and 1981 because it was the weakest capital in the system vendors section . With smaller volumes of shipments than other vendors it always has a hard time re-entering the system vendors cycle . Product decisions made by the old management also meant that the company was exposed to predatory attacks once its products launched in the mid-1970s were towards the end of the cycle . This drained research and development monies, forcing the company close to bankruptcy irrespective of the actions of the workforce . In the crisis of ICL, the workforce was a passive observer of the unfolding impact of economies . The union leadership had already weakened its position to resist the impact of the rescue plans because of its adherence to an economic strategy which saw ICL as the core of an electronics industry which it was defending to the detriment of several thousand of their members . The crisis, endemic within the industry, was weathered in 1981 at the price of jobs and changed job practices as well as wages . The crisis at ICL, however, was not precipitated by the actions or demands of labour, but issued directly from the dynamics of competition and capital accumulation within the information technology sector as a whole .

Reference AGLIETTA, M . (1979) The Theory of Capitalist Regulation, London: New Left Books .

Review Articles

M11 THE REMYSTIFICATION OF VALUE A review of The Value Controversy, Ian Steedman and other authors, NLB, London, 1981, and Value : the Representation of Labour in Capitalism, Diane Elson (ed), CSEBooks, London, 1979.

Barbara Bradby The Labour Theory of Value

If an interest in Marx's theory of value was what early CSE members had in common, it is perhaps paradoxical that of these two recent books on value, it is the New Left book that will be the most recognisable and accessible to those who either lost faith or all interest in `value' around ten years ago . Without so much as an editorial (or, apparently, an editor) we are plunged into `the controversy' with eight terse pages from Steedman . The gauntlet clearly thrown on familiar ground, we turn the page and expect some `capital logician' to gallop in on a white charger, but Paul Sweezy seems a tired and weak opponent . As he says, it is forty years since he proposed von Bortkiewicz's solution to the transformation of values into prices (Sweezy, 1942), and Steedman's objections are not new . He makes some heartfelt remarks on the difficulty of explaining to people that one cannot separate off the `quantitative' from the `qualitative' aspects of Marx's value analysis . But the bulk of his article is an analysis of present-day capitalist crisis within a Keynesian framework of national and international debt-creation that makes no reference to value at all . Puzzled, we move on to a long winded attempt by Erik Olin Wright to subsume Steedman's post-Sraffian approach under Marx's `labour theory of value'- very brave, or slightly naive, we wonder, as no less than an entirely new theory of structural causality is wheeled out to accomplish this . I confess to picturing Erik Olin as a Viking warrior landing on Merseyside in search of political reality, but out steps Geoff Hodgson, a wily Saxon who has invented the hatchet, and does a dexterous job on him . A second reply to Wright focusses on Wright's claim that Marx's value theory produces superior research agendas to Sraffa's : Pradeep Bandyopadhyay here makes the wild claim that "virtually all of Marx's concerns in Capital Vol .1 regarding the labour process could be analysed in an appropriately complex Sraffian model" (Steedman, 1981 : 128) . And Wright then produces

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some 'Reconsiderations' (signs of the New Left editor at last) in which he keels over into the Sraffian camp, admitting even such non-starters as that the Sraffa system "implies a conceptualization of class rooted in production . . . and directs class analysis towards the investigation of the labour process . . . " ( ibid : 161) . This would seem just to be empirically false as a statement about what Sraffians do, but it also lets them off the hook at one of their most vulnerable points : since the distinction between necessary and surplus labour is irrelevant in the Sraffa framework, the distribution of the product between real wages and profits is not related in any way to production, but can be determined directly by class struggle at the level of distribution . That Erik Olin Wright would miss such points is not at all surprising ; as smug old hands at the game we notice that he continually confuses and interchanges `surplus labour' and `surplus value' . In fact, he admits in a footnote that he finds the two equivalent under capitalism (ibid : 43-4, fn .10), which prompts Bandyopadhyay to ask whether Wright has just "fail(ed) to understand what the argument is about or (is) misleading his readers" (ibid : 109) . Makoto Itoh would seem to embody Sweezy's ideal of a marxist, in that he can do both mathematics and dialectics . For my money this is the most useful contribution in the book . In a few pages Itoh produces both a mathematical and a historically specific explanation of Steedman's 'joint-production' paradox, at the same time showing how it is only a paradox and not the real contradiction implied by Himmelweit and Mohun in their article in the book . Briefly, Steedman's principal line of attack on Marx's theory of value is to argue that where one labour process produces more than one commodity, the amount of labour-value to be allocated to each one is not only indeterminate, but may even under certain mathematicaltechnical conditions, be negative . Itoh argues that one cannot look just at the quantitative substance of value, but must also take into account the commodity-form it inevitably takes . Once we do this, then the market identifies certain technical conditions as the dominant social ones in producing a certain commodity, so that there is not an infinite variety of products and processes as Steedman claims ; provided we assume a fixed total for the labour producing the two commodities, then the market under capitalism (or some other system under a different mode of production) will determine the allocation of value between the two commodities . The resulting ratio will then not be entirely determined either by the technical conditions of production, or by the demand of individuals . Under capitalism, it is the anarchic operation of the market which simultaneously allocates labour among industries, and determines which is the dominant technical process in each industry . This it does through the form of money whose function is "to measure values in a market" (ibid : 170) . At the same time, this function "serves as a mechanism to determine the ratios by which to allot labour substance between or among jointly produced commodities, according to the ratios of their equilibrium price levels" (ibid : 170) . Itoh claims that, provided we take into account this function of money as measure of values in a market, "the amounts of

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CAPITAL & CLASS embodied labour in the necessary means of subsistence for wage labourers and in the social surplus products, and hence the rate of surplus-value, are thus determinate always in a positive range even when some commodities are jointly produced" (ibid : 171) . Itoh's article is the first we come to that actually focuses a controversy . He takes up a crucial point in Steedman's argument and tries to disprove it, at the same time shifting the ground on which it is discussed . Moving on, the next article, by Michel de Vroey is a useful summary of the theory of Michel Aglietta (1979), and raises many of the issues raised in the CSE book discussed below . But within this book, it loses the focus once again, as it does not engage directly with Steedman or Sraffa . For instance, the claim that "the theory of value simply cannot stand without a theory of money" (ibid : 173) could be taken as an important criticism of the Sraffa system ; but it is not phrased as such here . There is a similar lack of engagement in the article by Gerry Cohen, a philosopher who appears to have picked up some of the self-assurance as well as the dismissive attitude to marxist theory shown by many Sraffians . According to him, his "essay shows that the relationship between the labour theory of value and the concept of exploitation is one of mutual irrelevance" (ibid : 202) . He bases his argument on the assertion that labour does not produce value, but only a product which has value . This approach denies the historical specifity of the value-form in capitalism, and so leads Cohen to conclusions such as that "the exploitation of the proletarian is . . . more similar to the exploitation of the serf than traditional Marxism says" (ibid : 222) . Unwittingly, Cohen here brings out the similarity between Sraffa and the classical economists criticised by Marx . Their treatment of commodities purely as physical quantities produces an ahistorical model which in many respects could equally well apply to a non-monetised feudal system or to planned socialist production . Money, if analysed as just another quantity of embodied labour, disappears from the system . Any commodity could equally well be `money' . For Cohen, "if anything justifies the Marxian charge that the capitalist exploits the worker it is the true proposition . . . that workers alone create the product" (ibid : 223) . The fact that this product must take the form of exchange-value in order to represent value at all has no relevance for him . In attempting to provide a philosophical underpinning for Steedman's theory, he has only followed Steedman in failing to say anything specific about capitalism as a system where social production must be represented as money . With the article by Himmelweit and Mohun, the controversy comes back into focus . Their work will be familiar to readers of Capital and Class (Himmelweit and Mohun, 1978) . They argue that the crucial difference between Ricardo's theory of value and that of Marx is, once again, Marx's insistence on exchange-value as the form taken by social labour in capitalism . The transformation problem is for them a problem thrown up by and acknowledged by Ricardo "the contradiction between an embodied-labour theory of value and a cost-summation account of price" (ibid : 231) . One way out of this problem is that taken both by neo-classical economics and Steedman


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following Sraffa . It is to discard the concept of value as redundant, and produce a tautologous account of prices in terms of costs of inputs (ibid : 254) . But the criticisms of redundancy and inconsistency applied to a Ricardian concept of embodied labour do not, they argue, apply to Marx's concept of abstract labour . For a start Steedman's `data', the socio-technical conditions of production and the real wage, are not `given' in marxist theory, nor are they simply determined `from outside' by the class struggle : they are determined by the operation of the law of value through the market . The examples of inconsistency in such cases as joint-production arise, they argue, as real contradictions because "the capital that sets in motion some production processes which are `wasteful' of total social labour may still be validated by . . . competition, and hence produce a portion of the total surplus-value (ibid : 263) . The last word in the book goes to Anwar Shaikh, whose highly original attack on Steedman is also an attack on all those who concede Steedman's main points, and abandon all discussion of value as a magnitude of labour, deny that this was what Marx meant by the term, and take refuge in discussion of the form of value . This would include Himmelweit and Mohun and a fortiori, all the contributors to the CSE book discussed below, (except Itoh) . But, Shaikh polemicises, if value can only have a magnitude as exchange-value, this reduces value to price, and surplus-value to profit, and their need be no divergence between quantities (ibid : 299) . Too many people have been terrorised by the algebra of the Sraffians, which in fact smuggles in assumptions of "equilibrium, profit as a cost, and, worst of all, perfect competition . . ." (ibid : 268) . Algebra should not be ignored, but should be asked different questions . Shaikh argues that quantitative value is neither redundant nor inconsistent as a concept . Like Himmelweit and Mohun he argues that the physical production data, taken as given by Steedman, are themselves determined by value . (Itoh would argue that the market must determine which production process counts as the dominant one for the determination of the magnitude of value .) But unlike the latter authors, he believes that there is a possible mathematical and logical solution to the 'transformation problem' . This is the problem of how total price can deviate from total value (and surplus-value from profit), even when the value of money is held constant . Shaikh shows that no deviation arises when wage-goods or means of production are sold at prices different from their values : in these cases, the change in total price will equal the change in total cost-price over all branches, so that the sum of profits will remain the same . What one capitalist gains in capital-value by raising prices of means of production, is offset by the loss of capital-value, as constant capital, by the capitalist class as whole : the transfers of value cancel each other out, because they remain within the circuit of capital . The same applies to changes in the prices of wage-goods (ibid : 284) . The case of capitalist consumption goods is different . A change in price still produces a transfer of value within the system - this time in the form of a gain or loss in revenuevalue by the capitalists who buy the goods . However, this transfer

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CAPITAL & CLASS disappears from view, because it drops out of the circuit of capital, "and is therefore not `charged', so to speak, against the fall [or rise] in profit . It is this transfer of value between the circuit of capital and the circuit of revenue, through the process of exchange, that explains why price-value deviations can give rise to deviations between the sum of profits and the sum of surplus-values, without violating the law of the conservation of value through exchange" . (ibid : 285) This solution would treat the transformation problem as caused by a divergence between prices and values of outputs that are not also inputs elsewhere in the system . But what of the frequently heard argument against value, that says that the value rate of profit is without significance, since actual capitalists base their decisions on the money rate of profit established on the market? Shaikh points out that the assumed reality of the money rate of profit, equalised across the economy, is itself only an abstraction . Since there is never in practice such a thing as a uniform rate of profit, prices of production themselves can have no existence, and cannot be equal to the prices that capitalists base their risky decisions on . Steedman's theory is itself an abstraction from real life . But of course this does not mean that the uniform rate of profit is a meaningless concept . By the same argument values and the value rate of profit are not meaningless concepts . They are important as inner regulators of prices of production and the average rate of profit, even though they too never appear as such in circulation (ibid : 293-4) . In a similar way, Shaikh applies Steedman's own arguments about the choice of technique back on him . Steedman had pointed out that, if capitalists make decisions on the basis of prices of production, then the raising of one industry's profit rate by the adoption of a new technique can result, paradoxically, in an overall lowering of the value rate of profit . But by the same token, says Shaikh, since capitalists in fact make decisions on the basis of market prices, then similar inconsistencies may arise between market profits and the average rate of profit calculated from prices of production . So what? We do not, therefore, abandon the very concept of an average rate of profit . Nor, says Shaikh, should we abandon the concept of value . The trouble with this method of argument is that it might just as well be turned around against Shaikh himself . Why not stop talking about the àverage rate of profit' as a formative influence and look at capitalists' perceptions and attitudes to it instead? The finance journals, after all, look at the òptimism' and `pessimism' of markets and other business behaviour . If the transformation problem is a real one, then clearly it has a solution in reality, since capitalist firms and markets `solve' it all the time . They are continually transforming labour into money through the calculation and appropriation of labour time in the commodity-form . The recent focussing on the labour-process has begun to research one end of the chain of transformation of labour into value - the one where it is most obvious that social relations are there to be demystified, since there are actual people, workers, foremen, etc . involved - and it has thrown light on the question of how people's actual labour is transformed into `socially


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necessary labour-time' . Perhaps research and analysis from a similarly , value'-informed perspective on the way board-rooms and stock markets work would throw some light on other aspects of the transformation . All in all, the New Left book does not have a lot in it that will be new to CSE readers, which is why I have concentrated on the article by Shaikh . As a summary, or guided tour through the debate the book is unsatisfactory, if only because nowhere is there any statement of the `capital logic' position, as put forward by David Yaffe and others at the time when Steedman was sharpening his ideas against them (Yaffe, 1972) . If this is a position that has fallen into disrepute, then it would be good to know why . Instead it is felt as an absence in the book, a position that the authors feel their way around, so as to avoid being identified with it . What is sad is that the book gives no indication of the debate on value ever having led on to anything else . It appears as a fossil that may still give the odd kick, but never as something from which other debates grew . The Value Theory of Labour

If the New Left book has a focus, it is Steedman's charges against the theory of value, and some of a range of possible replies defending the marxist theory against these charges . The CSE book puts this controversy firmly behind it . Indeed, in the only place where it is discussed in the book, Diane Elson explicitly defends Steedman against his critics, and argues that his theory is watertight in its own terms, in which the theory of value is seen as "an explanation of equilibrium prices in terms of labour quantities" (Elson, 1979 : 121) . Instead, she argues, it is Steedman's critique of value which is redundant, since Marx's theory does not try to make value into the origin or cause of prices or anything else . She sees value as important because it is the form necessarily taken by labour in capitalism . Her article is useful because her method of turning the labour theory of value on its head is a good description of the project of the whole book, and also because it puts this project in perspective, as a reply to the onesidedly quantitative approach to value taken by most English-language writings on value from the fifties on . Once again, the authors in this collection show a generalised fear of being identified with the `capital logic' position, and once again this position is present only by implication. The book itself is not shaped as a debate, but is better seen as a series of essays sharing many similar themes . At times this can lead to repetition, and a suspicion that only the editor had read all the other contributions . But, considering that the 'value-form' has been much talked about in recent CSE meetings, it is perhaps a good thing to see it written about in so many different styles . These range from the impassioned Hegelianism of Banaji to the (to me) more down-toearth version of Geoff Kay . But it is interesting that even these two articles have so much in common since their targets for misunderstanding Marx are poles apart . Banaji attacks Lenin, Nicolaus and anybody else who thought they were a Hegelian marxist for not having understood Hegel properly, while Kay's target is Bohm-

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CAPITAL & CLASS Bawerk, as the prototype for subsequent critiques of Marx by bourgeois economists . Both these contributions, as well as the one by Chris Arthur, share a preoccupation with Hegel and with dialectical logic . Kay's is perhaps the easiest to start with, as he shows what he means by dialectics in a rather practical exposition of the difference between Marx's method and that of Bohm-Bawerk as the prototype for neoclassical economics' criticism of Marx . Why did Marx insist that abstract labour was the common property of all commodities, rather than use-value, which, as ùtility' has become the abstraction on which marginalist economics is based? Kay argues that whereas 'usevalue-in-general' is a purely ideal abstraction, and use-value can only appear as a particular material form, 'labour-in-general' does have a material existence apart from the appearance of particular labours as concrete labour . This material form is that of money . It is this that allows Kay to claim that Marx's argument is not one of formal, logical derivation, but is a "theory with a real content . . . never separated from the concrete by an unbridgeable gulf' (ibid : 52) . Chris Arthur attacks the idea that Marx's method can be reduced to formal logic, from a different direction . He shows that Marx's development of the value-form is not simply the formal abstraction of an identical property shared by all commodities . If it were, then Marx's value equations would obey the logical forms of reflexivity, transitivity and symmetry . However, for instance, as Marx himself said, "20 yards of linen = 20 yards of linen is not an expression of value" (Marx 1976 : 140) . The value equation must relate different use-values . Similarly, Arthur effectively attacks one of Steedman's weak points when he shows that the money-form is not transitive . If in a purely formal input-output model, any commodity could act as the numeraire, it is not true in real life that any commodity is acceptable as general equivalent . "In other words money is not a `mere form' of the abstract universal : value ; rather, it concretely mediates the identity of values with each other." (Elson, op .cit : 79-80) Once again, money is shown to be the abstract universal with a concrete, material form . Similar points can be drawn from Athar Hussain's exposition of Marx's `Notes on Wagner' reprinted from Theoretical Practice, with an apologatory preface from Hussain, ten years on. If Ricardo could "find no connection between his theory of value and the nature of money" (ibid : 87) the same applies to the neo-ricardians today . The effect is to make the analysis, in either case, transhistorical, and the capitalist mode of production eternal . In a curious reversal of common-sense, Hussain proceeds to make `value' into the universal category, applicable wherever "the producer of a good and the consumer of that good are not identical" (ibid : 94) while money, in its role as a ùniversal equivalent' becomes a historically specific "effect . . . of the capitalist mode of production" (ibid : 87) . In other words, `value' applies to any way in which private labour is made social, which means that women's domestic labour as well as state labour would have `value' in keeping with the commonsense use of


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the term . But Hussain wants to argue too that under capitalism, value necessarily takes the form of exchange-value, emphasising the form of value, as the commodity-form and the money-form, like the preceding authors . Unfortunately, the circularity of the whole argument is here very clearly exposed . Capitalism is that "mode of production . . . characterised by generalised commodity production" (ibid : 84) . Again, "the capitalist mode of production has a mode of distribution specific to it which is distribution by means of the exchange of equivalents" (ibid : 94, my italics) . Given these definitions, it is tautological that under capitalism and only under capitalism "exchange-value is the necessary . . . form of value" (ibid : 84) . Since capitalism has been defined as a historically specific mode of circulation, this circularity seems inevitable . Domestic labour will not be part of capitalist production because its products are not sold as commodities . Any historical or anthropological investigation of money and the commodity-form are closed off by definition . Banaji glorifies this kind of circularity into a quasi-religious ode to the first chapter of Capital . I shall deal in greater detail with his position in the final section of this paper . Within the context of the book, Banaji's article is important for establishing that "value is not labour . . . [It is rather] . . . the abstract and reified form of social labour" (ibid : 34) . For Banaji, then, quoting Grundrisse, (Marx, 1973 : 259) "to develop the concept of capital it is necessary to begin not with labour but with value" (Elson op .cit : 34) . Prima facie, this contradicts the title of Geoff Kay's paper, `Why Labour is the Startingpoint of Capital', and it is a pity that these articles were not written in debate with each other . But Bana ji's disproof of the `labour theory of value' as conventionally understood is also the starting point for Diane Elson's article `The Value Theory of Labour', which tries to show that Marx's theory is about the determinate social form which labour takes under capitalism . This is an excellent article for summarising this position in relation to previous (mis)interpretations of the labour theory of value, as well as for putting the work on the , value-form' in a clear and comprehensible perspective . It is also the only article in these two volumes that has anything political to say about the relevance of value analysis . I heave a feminist sigh of relief, which is not entirely out of place, since it is partly because this article shows an awareness of the arguments put forward in the domestic labour debate that it is more political . She claims that Marx's analysis recognises "the limits to the tendency to reduce individuals to bearers of value-forms" (ibid : 174) . In other words, the analysis of labour under capitalism is not exhausted by looking at abstract labour in the commodity-form . Labour has other aspects, such as the "concrete and the private" aspects, (which were emphasised in the work on domestic labour) and the "collective aspect" (part of the analysis of labour process struggles) . Diane Elson claims that Marx's value theory opens up the possibility of conscious, political action around these private, concrete and social aspects of labour (ibid : 174) . This claim is added as an afterthought, however, and it is not clear C&C 17

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CAPITAL & CLASS that it is entirely consistent with the bulk of the article which is devoted to showing how labour necessarily becomes abstract labour under capitalism . This would imply, again, that areas such as domestic labour are actually outside capitalism, whereas the analysis of the àfterthought' summarised above, would imply that domestic labour is merely subsumed under the apparently dominant form of abstract labour . The more sustained political point made by Diane Elson is that the value analysis is the theoretical basis for uniting the often contradictory struggles of the working class around the dual issues of money relations and labour-process relations . Value analysis does not allow us to make the artificial separation of spheres of production and circulation, and define exploitation in relation to one or other of these, depending on our political preference . Value shows the process of capitalist exploitation to be an indissoluble unity of production and circulation, of labour-process and money relations (ibid : 171-3) . I find these remarks tantalisingly brief. Can an analysis of the theoretical unity of contradictory aspects of experience get over the real contradictions of political practice? What is more they do bring us back to a crucial theoretical problem which recurs throughout the book . How is this unity of capitalism as production and circulation established? And does it make any historical sense? After all, the thesis of this book is that it is the form of value, of general exchangeability, that is distinctive of capitalism . I have already argued briefly that in the articles by Banaji and Hussain this leads to a circulationist definition of capitalism . This definition is then merely asserted to be necessarily linked to a specifically capitalist form of production . Diane Elson is aware of the need to prove this point and tells us that `this kind of general interchangeability of goods can only become the dominant form of exchange on the basis of capitalist relations of production, in which labour is separated from the means of production (ibid : 153) . I see two major problems with this approach . Firstly, sooner or later, it must face up to the fact that money as we know it is not unique to capitalism . Coins were invented in China around the 6th century BC and paper money by the Chinese state in the 7th century AD . Its development as a `real abstraction' does not appear to have been linked to the circulation of commodities, but rather to the rationalisation of state tribute exchanged for state monopoly goods (Bloch, 1975) . Its use was extensive throughout pre-capitalist Africa and Asia, in the ancient economies of Greece and Rome, in European feudalism, and so on . None of this is new, and none of it apparently requires comment by the value-magicians . But if money is to play such an important role in the argument as the ìncarnation of abstract labour', then we must be shown how this is different from its role under other modes of production . Presumably the assumption is that under other modes, commodity production is not `generalised' as it is under capitalism .

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This is precisely the second problem with this approach however . How are we to say when or where commodity production is `generalised?' Diane Elson's article could be summarised as saying : value is the form necessarily taken by labour when commodity production is generalised ; commodity production is generalised under capitalism ; therefore value is the form necessarily taken by labour under capitalism . And this would also stand as a dramatically over-simplified summary of the whole book . The concept of `generalised commodity production' therefore plays a key role if the book is to be saying anything that is not merely tautologous . As such, `generalised commodity production' seems to be used in two ways, both of which present insuperable difficulties . It might mean that every commodity is exchangeable for every other commodity, usually through the intermediary of money . Elson, for instance, claims that the concept of general direct exchangeability depends on there existing a universal equivalent in the form of money (ibid : 162) . But if this is so, then general commodity production could be said to exist in many pre-capitalist markets, especially ones like those in 18th century Dahomey, where the use of money was enforced by the state (Polanyi, 1956) . It would clearly exist in many pre-capitalist markets today in the underdeveloped world - only certain products have become `commodities' but those that have are exchangeable for all others that have . In this sense, `generalised commodity production' would be a description of any market-place, and of any more diffuse system of exchange by means of money . Alternatively, `generalised commodity production' might be a description that meant that everything produced in the society were exchanged in the commodity form . As a description of the kind of society we live in, this is clearly false . The two biggest employers in almost any industralised country in the world today are the domestic sphere and the state . Very little of the labour done in either of these spheres is exchanged in the form of commodities . But if we then retreat and confine the description `capitalist' to those spheres of the society where commodities are produced and exchanged, then once again the argument of the book becomes virtually tautologous . Up till now, I have tried to write as an insider, presenting a summary of the debates, and looking at them in terms only of their coherence and consistency as debates . In the next section, I shall step outside the terms of these debates, and try and show the relevance of some of the criticisms of value theory that have been levelled at it over the last ten years or so, and which have been largely ignored in these two books . Labour Outside Value

The opening up of CSE as an ùmbrella group' for different disciplines and counter-disciplines of the left, after the 1976 conference on the labour process, should ideally mean that different positions confront each other in a public forum, and force each other to change and modify positions that otherwise would become static and entrenched . Unfortunately, such public debates as do occur in plenary sessions at

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CAPITAL & CLASS conferences, tend only to reflect positions that are already entrenched and hegemonic, so that a structure of workshops and working-groups becomes necessary to develop new positions with some autonomy . The danger is that CSE becomes an umbrella for many autonomous but mutually contradictory positions, which are never really forced to confront and sort out these contradictions . The founding of CSE coincided with the theoretical ferment of feminist theory which hit economics in the form of the `domestic labour debate' . It is to CSE's credit that it was to the forefront in publishing British contributions to this debate . CSE was more isolated and certainly less fashionable in giving a platform to the work of Alfred Sohn-Rethel on `time-economy' and on ìntellectual and manual labour' . In recent years, CSE has been a forum for debate among `radical scientists' who are also marxists . I mention these three particular developments because they all figured quite prominently within CSE as challenges to the existing orthodoxies on value . Yet, ten years later, `value theory' marches on unscathed, without so much as a mention of any of these developments . The CSE ùmbrella' apparently functions more to shelter differing positions from each other, than to allow them to debate with each other in relative autonomy from the world outside . Following these developments, we could outline four main areas of `labour outside value' : 1 . Domestic labour 2 . State labour 3 . Labour performed within large corporations that is distributed internally, rather than through the commodity form . 4 . Scientific labour . The first area should be relatively familiar from the debate on domestic labour ; a summary collection of articles from this debate can be found in Malos (1980) . The third area is specific to the work of Sohn-Rethel (1978), who argues that within large corporations, where labour and products must be allocated between branches according to an internal `plan' rather than according to external commodity values, a new form of `socialisation' of labour is at work, one which contradicts the `law of value' of capitalist society and prefigures a new socialist way of making labour social . This analysis has been extended to the labour of the state sector in unpublished work by the Brighton Labour Process Group . The state is likened to Sohn-Rethel's large firm, in that its organisation of labour is subjected externally to a value constraint, but no such constraint operates inside the state sector, whose products are not on the whole, socialised as commodities . State production is better analysed as a 'levy/bounty' system, where general levies are applied to the population in order to finance production of goods and services that are then redistributed to those who need them . The fourth area, that of scientific labour, also derives from Sohn-Rethel's work, but has been taken up in the pages of Radical Science Journal . Sohn-Rethel analysed the contradiction involved in the attempted socialisation of scientific labour through the commodity form, and


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again, pointed to the potential inherent in this contradiction for a new, more direct, form of socialisation of labour . On the face of it, the onslaught was devastating . How could one maintain a labour theory of value in face of the recognition that the labour of half the world did not take the form of `value'? Domestic goods and services do not become 'self-expanding value', they do not enter into `surplus value', they do not take the `commodity form' . A simple way out for the labour theory of value would be to assert that it is concerned only with the analysis of the area of the economy that does come under value relations - its contribution is to show that underneath all the mystifications of 'self-expansion' is a very material process - work. But in general the labour theory of value did not have to defend itself in this way because the leaders of the attacks were on the whole concerned to preserve the theory of value . They therefore subordinated their attacks to the hegemony of value theory . Domestic labour became the `reproduction of labour-power' in innumerable versions and state labour became the `reproduction of the wagerelation' (Holloway and Picciotto, 1977) . Instead of pointing up the contradictions between these forms of labour òutside value' and the capitalist ideology of value, these theories made everything functional to the reproduction of the value form . Indeed, in one of the earliest contributions to the domestic labour debate, Dallacosta and James really precluded the analysis of anything specific to women's domestic exploitation, presenting a naive plea for housewives to be considered like men as part of the working class producing surplus-value directly for capital. The `value theory of labour' is even more vulnerable to such attacks, however . When pointed out that not all labour does take the value-, or commodity-form, its proponents must answer that they are only concerned with labour in the capitalist sector. But if capitalism is equivalent to `generalised commodity production', then of course all capitalist labour will take the commodity form - by definition . Diane Elson is aware of this issue, and argues that we should analyse domestic, state labour, etc, as subordinate to the value-form . While in itself an advance on the functionalist theories of `reproduction' mentioned above, this does not seem to be compatible with her central thesis, that labour in capitalist society necessarily takes the value form . Whether through theories of `reproduction' or of `subordination', these ways out try to ignore the discovery that value theory is centred on a contradiction . Its central commodity 'labour-power' derives its value from an appropriation of unpaid female labour, primarily by men . This labour is clearly more `socially necessary' than any other, since without it, labour-power would have neither use-value nor exchange-value . The use-value of labour-power, the capacity to work, is itself the appropriation of unpaid female labour ; its exchange-value is simply the market value of the commodity inputs to the labour process plus any surplus the worker can win for his own surplus consumption . The exchange-value of labour-power is worth nothing

1 26

CAPITAL & CLASS without unpaid female labour to process the commodity inputs into new labour-power . The wage relation is therefore an exchange of use-value for exchange-value of labour-power, which takes place paradigmatically between men, on the basis of an appropriation of unpaid female labour. At the same time as trying to ignore the separate material basis for the exploitation of women by men in our society, however, the theory of domestic labour as the reproduction of labour-power, also suppresses the potential of domestic labour for contradicting 'value'regulated labour . For labour done in the home is not governed by time economy in the way that labour is inside the capitalist sector . Use-values produced at home very often derive value from having more time spent on them, rather than less, as in capitalist competition . A three-course meal has more `value' in domestic terms than a quick snack, a carefully ironed shirt more than one pulled straight from the tumble-drier . Sometimes the extra time spent on domestic tasks may be completely àbstract', in that it does not apparently increase the use-value of the final product at all - its only importance is to show that time has been spent, and domestic value therefore increased . The capitalist firm, on the other hand, increases surplus value by spending less time on each operation than does its rivals . Extra time lavished on a product is unlikely in the long run to be realised . In the same way, the analysis of the state as reproducing the wage-relation both ignores the state as a hierarchical accumulator of surplus in our society, and the state as a redistributive mechanism . That the state economy comes into contradiction with the very form of value hardly needs stating in our days of cuts in state expenditure and of foreign borrowing ; but that state redistributive forms are progressive is something that only becomes evident at a time when we are compelled to defend them against `cuts' . At the same time, the experience of 'statism' - the rule of the bureaucracy in socialist societies - should alert us to the fact that the state does not just come into contradiction with private capital as redistributor to the people's needs . It also contradicts private capital as an accumulator of power and wealth in the society, and one that may outlive private capital, in exactly the same way as may the exploitation of women by men . In practice, state power and patriarchal power are clearly linked through the politics of naming . Names are given to individual men by the state in order that they can all be distinguished from each other for the purpose of paying taxes . (Hence the coincidence of census enumeration with taxation, from ancient times till the present day .) Ability to pay tax, based first on property and later on the concept of income, entitles a named citizen to elect and be elected in the state power structure, and to receive benefits redistributed by the state and financed out of taxation . Women, however, are not named by the state in their own right, but are born with their father's name, which may later be exchanged for another man's name, when the woman herself is exchanged in marriage . Only very recently have states started to allow women some property and income in their own right,


127

on the basis of which they can be taxed and receive the vote . Despite the EEC legislation, the status of a woman as `dependent' of a man for the receipt of many state benefits still exists, and in some cases, the practice of paying out benefits only to those who pay taxes goes on . (For instance, in Ireland, a woman married to a wage-earning man paying social insurance, receives no state dental care herself, while her husband does .) We should recognise that this alliance of patriarchal and state power in our own society is to some extent independent of the power of private capital, and is quite capable of outliving it and providing us with the kind of patriarchal statism common throughout the socialist world . But at the same time, we should be able to utilise these contradictions in our apparently monolithic system in order to bring about progressive change . It is for these two reasons that I believe we should abandon the search for a theory that can unify different struggles that often appear contradictory in practice, a project which Diane Elson presents as justification for the Value book . The analysis of intellectual and scientific labour presents exactly the same kind of dual contradiction . On the one hand, it is the space òutside value' that we are trying to create in CSE . In Eastern Europe, it is Bahro's `surplus consciousness', the potential for cultural revolution (Bahro, 1978) . On the other hand, it is technocracy, the power of knowledge, the sine qua non of further capitalist expansion, as well as of state power and of much of men's power over women . As an independent force, it can be seen as challenging the power of the socialist bureaucracies, whose power rests in a control of circulation via the plan, with a new power base that is rooted in a knowledge of production, the scientific and technocratic `means of production' for the third industrial revolution . Sohn-Rethel encourages us to see these kinds of contradictions as potentially progressive, to exploit their incompatibility with the value form . In all these areas, then, we can choose either to analyse these forms of labour as non-commodity forms, as òutside value', or we . can put them inside value theory again, by making them part of the reproduction of value relations, or subordinate to the value-form . In the next section I go back to look in more detail at the implications of domestic labour for the labour theory of value . Female Work

As was stated above, Marx's theory of value attempts quite simply to demystify the apparently mystical process whereby money turns itself into more money, and show that underlying this process of 'selfexpansion of value' is really the concrete, material reality of work . And the domestic labour debate started out with a similar object - to show that underlying the apparently mystical process whereby the labourer, to borrow Althusser's unfortunate phrase, `reproduces himself, there lies a similar material process of work . The trouble is, once this work or labour is admitted to exist, then the `labour theory of value' loses its relevance . Why should it be so significant that labour underlies the valorisation process, if another, equally time-

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CAPITAL & CLASS consuming and socially necessary form of work, does not get valorised at all? Marx's theory of class struggle is an excellent theory of relations between men, but it flounders when it comes to women, and reveals itself as rooted in a male ideology . The little man, in Marx, has been separated from his means of production by the big man, and reduced to the state where he must work for the big man, and where at least some of his work will take the form of an unpaid surplus. The aim of class struggle is for the little man (the working class) to win back both the means of production and the unpaid portion of his work from the big man (the capitalist class) . What this struggle must inevitably repress is the unpaid domestic work of women, where typically a woman works for a man . It must repress it, because it is this `female' work situation that the working class is struggling to get out of . A woman can find a place for herself in ideology as a worker, by taking up a position akin to that of wife or mother, where she is working for others, generally for a man, and is being paid less than him . In that situation, she can be a worker, and yet `recognise herself as a woman . A man, on the other hand, can recognise himself only as working for himself, or by extension, the buddy-group with whom he can narcissistically identify, the working-class . To work for his family is not understood through an ideology of sacrifice, but through one of building up his property . Most traditional male jobs do involve the idea of working for oneself, through the notion of acquisition of a craft or trade, and I would suggest that modern work-place organisation depends to a great extent on the ability to make men feel that they are working for themselves . The difficulty that Marxist theory has in accounting for work which falls outside the ideology that gives only male work the mark of value, is exactly analogous to the problem that Freud has in accounting for female activity (or work) from inside an identical ideology of masculine = active = culture . In Marx's theory the worker submits to the authority of the capitalist in exchange for value in the moneyform . It is through money, the symbol of value in Marx, that he has access to a woman, either by being able to `take her out' on a temporary basis, or by being able to keep her permanently in a house . In an exactly similar way, the antagonism between the little boy and his father is resolved by an exchange between them, whereby the little boy accepts his temporary lack of authority (masculinity) in return for the future promise of the mark of value or masculinity - in Freud, the penis ; in Lacan, the symbolic phallus - which will in turn give him access to a woman . In each case, what is exchanged between the two men is an ideological mark of masculinity which can be translated into a woman, whether through the `family wage' or through Freudian notions of patriarchal power . But each theory is built on a similar contradiction . Marx, while claiming to show that the concept of value depends on that of work, in fact shows it to depend on the ideology of work as male, since female work is not valorised in the same way . Freud, having accepted with some qualifications the equation of


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masculinity with activity and with sexuality was then at pains to account for female sexuality . The problems is highlighted by the equation by some post-Freudians of the unconscious with the female (Kristeva, 1977, Irigary, 1977) . If the unconscious is what is repressed by the active censorious part of the mind, it is in a sense female . Yet it is crucial to Freud's theory that the unconscious performs work, which in the theories of dream-work and joke-work, is fitted into elaborate èconomic' models . The idea of `female work' is therefore a contradiction that is nevertheless crucial to Freudian theory . Now, it is precisely because the work of the unconscious often (and almost by necessity) comes into contradiction with the paternal symbolic order, that there is a point in feminists taking it up, as Julia Kristeva did, for instance, in her work on Chinese women (Kristeva, 1977) . The feminist theory of domestic labour as `the reproduction of labour power' misses the point that the materiality of female labour is in an exactly similar way, contradictory of Marx's theory of value . If domestic labour is simply part of the reproduction of the capitalist wage-relation, then clearly women's interests lie with men's, at an economic level, in bettering, or subverting the wage-relation . For feminists to endorse this analysis is to encourage women to join with men in their struggle to avoid being put in the position of women, or 'feminised', through their lack of authority in the labour-process and the way in which a large part of their work is ùnpaid' . But if we analyse things differently, and say that the mysterious 'use-value of labour-power' (that ùnique quality' of labour-power as a commodity in Marx, that enables it to produce more than its `costs of reproduction') is quite simply and un-mysteriously the appropriation of unpaid female labour by the male worker, then the idea of women supporting men in their trade union and labour-process struggles seem quite simply, perverse, `false consciousness' of a kind which is itself anti-woman, and repressive of female work . I have argued that Marx's materialism lay in his critique of the ideology of self-expanding value . A sum of value, say £1,000 does not convert itself into £2,000 by circulating around the stock-exchange . As an abstraction, £1,000 is simply an idea in the minds of the stockbrokers ; but as capital, it must descend from this transcendental world of abstract ideas into the hidden, material world of the factory and physical labour . Marx does argue consistently that however much it may appear that money invested expands of its own accord (eg in the case of investment in rented buildings, or the absolute rent from landed property) the `surplus' always has a material origin, in the work of people . This may seem obvious, but it follows that Marx's project was to deflate the mystical property of 'self-reproduction' that appears to emanate from money-value, to show this as mere ideology, masking real relations of exploitation in work . To remystify `value' - to make the idea of value into the central object of study, or of worship - is therefore to subvert the materialist project . Nowhere is this shown more clearly than in the search for `value' as a mystical property hidden behind the real-world figures for

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CAPITAL & CLASS prices, profits, etc . The material critique of prices and profits lies in the analysis of the social relations of the labour process, not in the invention of further sets of abstract figures that are even further removed from material reality . The attempt to turn Marx on his head and look for a `value theory of labour', while it may have been prompted by an instinctive reaction to this kind of mystification and a wish to reassert `labour' as the point of the theory, is doomed from the start . To show that labour necessarily takes the value-form is not only an idealist project, which is logically the opposite of Marx's project as I have argued it above, it is also one that goes considerably beyond even capitalist value-ideology in bracketing all forms of labour under the capitalist value-form . As was argued in the preceding section above, this not only ignores the contradictory potential of areas of labour which cannot be subsumed under exchange-value and timeeconomy ; it also dangerously ignores the other value-ideologies current in our society - the value attached symbolically to masculinity, to state authority, and to scientific knowledge . The remystification was started by Marx himself, since he was writing from within an ideology that attaches value to masculine work, that is, work whose benefits are appropriated by the worker, rather than by another . Marx's model, in leaving the 'use-value of labour-power' as originating in a mysterious way in the process of circulation of the worker and of the wage-goods, recreates exactly the kind of mystification he criticises at the level of capital . In Marx's model, the 'use-value of labour-power' is a self-reproducing idea. A materialist critique, once again, shows the self-reproducing idea to be an ideology, rooted in material processes of exploitation which sustain it . But in this case, the materialist critique is also a feminist one, showing that what was repressed by the model was female work (unpaid and for another) . Finally, I would like to make a conceptual leap and argue that both the ideology of self-expanding value, which Marx exposed, and the ideology of the self-reproducing worker, to which he was blind, echo the central myth of Christianity . For all its apparent secularity, our society is still dominated by this ideology . Marx's ambiguous materialism is curiously parallel to the ambiguous materialism of christianity . The centre of christian mythology is the idea of a father who becomes his own son through a virginal woman, i .e . without the intervention of female sexuality . The son then passes back to being his own father again, without the intervention of the bodily process of death . God circulates through various changes in form, but has an identity as `he' which remains unchanged, is self-expanding, and self-reproducing, and can even undergo dialectical negations where spirit becomes matter and returns to spirit again . The ambiguity of the materialism of christianity arises from the fact that while its central figure is represented as a human, material one, this taking of the human form and in particular, the nine-month sojourn inside the female form, is not allowed to taint the spirituality of god the 'fatherson' . Spirit takes on matter only to triumph over it, eternal life claims


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victory over temporal decay, ideal masculine self-reproduction eliminates the material need for more than a single sex in reproduction . Marx is similarly ambiguous . The self-expansion of value is criticised ; value does have to pass through material work processes in order to expand or change form . But the materialism stops short of admitting female work into the model . Instead the male capacity to work (the use-value of labour-power) is the unexplained point of origin for the self-expansion of value . The self-expansion of value is therefore not subjected to a thorough materialist critique, any more than the idea of god as spirit is subjected to such a critique in the christian myth of Christ as human . In both christianity and marxism, the idea of the self-reproducing male wins out over the attempted development of materialism . The process I have called the 'remystification of value' completes the assimilation of Marx's proto-materialism back into the christian ideology . This is best shown in the article by Banaji, whose exegesis of the opening of Capital has many biblical resonances, but many of the points are made by other authors in the CSE volume . Banaji describes his method as being that of dialectics, which involves 'trac(ing) the movement through which the principle (essence), enters into appearance and acquires reality and existence .' (Elson : 22) So the project of the Bible is to show how the spiritual essence of god could acquire existential reality . Banaji says that Marx begins from The Commodity as presupposing Capital, and moves to a position where Capital presupposes the Commodity . The difference between the beginning and ending points on this circle is that Marx begins from the Commodity as an abstraction (albeit a historically determinate one that presupposes not some vague `simple commodity production', but developed capitalist production) and he moves to the position where Capital presupposes the Commodity-form as something with an objective appearance or Form . This objective Form is, of course, that of Money . The Money-form is the `sole form of appearance' of Value (= the Commodity-form), its `moment of actuality' . Through the developed form of Money, Capital can then posit Value (= the Commodity-form) as a `living substance' (ibid : 35) St . John, on the other hand says that Ìn the beginning was the Word, and the Word was with God, and the Word was God . . . and the Word was made flesh and dwelt among us . . .' In Banaji, Value (= the Commodity-form) takes the place of the Word, and Capital of God, while Money is the form in which Value is made flesh, and visible to us . The Bible then performs a similar dialectical movement as that which Banaji has explained Marx as doing : the original abstraction, the Word (Greek `logos' = Reason, or in modern terminology the `paternal symbolic order') already presupposes God ; through analysis and synthesis we move to the position where God presupposes the Word, this time with an appearance, or objective form, as flesh . Christ was the sole form of appearance of God, his , only-begotten son' . Through the human form of Christ, God can posit the Word as a `living substance' .

CAPITAL & CLASS

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The symbolism of money as the `visible God' (Jesus Christ) was common in medieval satirical poetry (Murray, 1978) from where it came down to Marx via Shakespeare . In Banaji, the movement through money is a `dialectical negation' since only by transforming itself into something with no use-value (money) can the Commodity succeed in uniting individual with social labour (ibid :33) . In the christian dialectical negation, the Word (immaterial spirit) transforms itself into something worthless (temporal flesh) in order to unite individual with social desire, so that those who believe in Christ can also become spiritual `sons of God' (New Testament, John, 1 : 12-13) . In Banaji, this whole dialectical movement is nothing but `the reflection of essence into itself, essence (the commodity-form) as a movement of reflection or mediation' (ibid :22) . So, the whole development of the Bible, the book of the Word, is nothing but the reflection of the Word into itself . It begins with Genesis, the origin, with the Word as the most abstract appearance of God (the spirit or breath moving on the waters) and moves to a position where God presupposes the Word as a concrete appearance (Jesus Christ) . Finally, for Banaji, Value, once made social, is a 'self-evolving substance' (ibid : 34), just as the Word, the gift of God to human society, is the self-evolving substance of the Bible . The central christian myth of male, monosexual self-reproduction with its rigorous exclusion of women, therefore has an analagous structure both to the ideology of self-expanding value (money that can reproduce without material work) which Marx criticised, and to that of the ideology of the male worker's self-reproduction, which was criticised in the domestic labour debate . The attempt to reinstate value as an object of study in its own right is to reinstate the ideology that Marx had begun to break down . It is to remystify the value of capital, under the influence of the mystified value of male work, which Marx himself was blind to . Materialism has now burst the bounds of this ideology of male work ; any future materialism must be feminist .

References

AGLIETTA, M . (1979) The Theory of Capitalist Regulation, London : New Left Books . ALTHUSSER, L (1971) Ìdeologies and Ideological State Apparatuses' in Lenin and Philosophy, London : New Left Books. BAHRO, R .(1978) The Alternative in Eastern Europe, London : New Left Books . BLOCH, R . (1975) 'Salz in der Geschichte des Geldes' Mitteilungen der List Gesellschaft, 8 (1975-6) Nos . 12-13 . DALLACOSTA, M . and JAMES, S, (1972) The Power of Women and the Subversion of the Community, Bristol : Falling Wall Press . HIMMELWEIT, S . and MOHUN, S . (1978) 'The Anomalies of Capital', Capital and Class, 6 . HOLLOWAY, J. and PICCIOTTO, S. (1977) 'Capital ; Crisis and the State', Capital and Class,

2. IRIGARY, L . (1977) Interview in Ideology and Conciousness, 1 .


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KRISTEVA, L . (1973) About Chinese Women, London : Marion Boyars . MALOS, E . (1980) The Politics of Housework, London : Allison and Busby . MARX, K . (1973) Grundrisse, trans . M .Nicolaus, London : Penguin . MARX, K (1976) Capital, Vol 1, London : Penguin . MURRAY, A . (1978) Reason and Society in the Middle Ages, London : OUP . NEW TESTAMENT : Authorised Version . POLANYI, K . (1966) Dahomey and the Slave Trade, Seattle ; Washington University Press . SOHN-RETHEL, A . (1972) `The Dual Economics of Transition', CSE Bulletin, Vol 2, No 1 . SOHN-RETHEL, A . (1978) Intellectual and Manual Labour, London : Macmillan . SWEEZY, P . (1942) The Theory of Capitalist Development, New York : Monthly Review . YAFFE, D . (1972) `The Marxian Theory of Crisis, Capital and the State', CSE Bulletin, Winter, 1972 .

25, Horsell Road, London N5

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BOOKS Of Marriage and the Market : women's subordination in international perspective,

edited by Kate Young, Carol Wolkowitz,

Roslyn McCullagh The main focus of the book is the ways in which feminists have tried to characterise and to explain women's subordination within pre-capitalist, capitalist and post-capitalist societies .

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FINANCE CAPITAL : A STUDY OF THE LATEST PHASE OF CAPITALIST DEVELOPMENT Edited with an introduction by Tom Bottomore from translations by Morris Watnick and Sam Gordon . Routledge & Kegan Paul; London 1981, ix + 466 pp., £22 .50 hb.

Jerry Coakley At the outset the person on the Clapham omnibus could be forgiven for questioning the contemporary relevance of a volume of economic analysis whose main outline was completed in the early 1900s by a practising doctor at the age of 28 . An initial attitude of scepticism could easily be transformed into one of complete dismissal if one were to take at face value Lenin's characterisation of the same doctor as èx-"Marxist", and now a comrade-in-arms of Kautsky and one of the chief exponents of bourgeois, reformist policy in the Independent Social Democratic Party of Germany" . Yet when Hilferding's project was published in German as Das Finanzkapital in 1910 its impact across the political spectrum of his contemporaries was striking. Not surprisingly political àllies' such as Kautsky and Bauer hailed Das Finanzkapital as an additional volume of Capital. But the work of political adversaries such as Bukharin's (1918) study of imperialism also owes a large intellectual debt to Hilferding . And, paradoxically, Lenin's (1917) classic, Imperialism, The Highest Stage of Capitalism is Hilferding's biggest debtor . A resolution of this paradox is suggested in the next section . Despite its early impact Das Finanzkapital has been allowed to gather dust on the shelves of English-speaking Marxists . How is this explained? The finger must point at Lenin in two respects . First, Lenin's (1917) study of imperialism stole much of Hilferding's thunder as far as English-speaking Marxists were concerned . Second, Lenin's concept of finance capital is essentially a derivative from Hilferding's, which is a more complex concept . This is not objectionable in itself but critics of finance capital have tended to conflate both concepts . Excuses for such conflation are now removed by the first official English-language translation of Finance Capital which has been long overdue . It is at last possible to reassess the contemporary relevance of Finance Capital at a time when there is some evidence of a renewed interest in money and the degree of control exercised by the financial system over the rest of the economy . 2 The aim of this article is to make a contribution towards ensuring that Finance Capital's insights extend beyond the pole of monetary specialists . This is all the more urgent since, in places, Finance Capital is a difficult and uneven book which requires some dedication to read from cover to cover.

HILFERDING'S FINANCE CAPITAL Hilferding's Project

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It is important to have a clear idea of the object and scope of Hilferding's project . Certainly it can hardly be said to lack ambition . Hilferding describes his project as an attempt : ` . . .to arrive at a scientific understanding of the economic characteristcs (my emphasis JC) of the latest phase of capitalist development (p21) . In other words, the object is to bring these characteristics within the theoretical system of classical political economy which begins with William Petty and finds its supreme expression in Marx . The fact that Hilferding explicitly confines his project to an examination of the economic characteristics of modern capitalism may go some way towards explaining why a political adversary such as Lenin could later draw so heavily on Finance Capital . But what does Hilferding have in mind when he refers to these èconomic characteristics'? Here again Hilferding is quite explicit in defining them as processes of concentration which (i) lead to the formation of cartels and trusts and thus the elimination of free competition (ii) bring bank and industrial capital into an even closer relationship . It is in this relationship that capital can assume the form of finance capital . These two aspects of concentration and their interplay form recurring themes throughout Finance Capital . How does Hilferding's project proceed? Finance Capital represents a sometimes uneasy amalgam of theoretical and conjunctural analysis . His theoretical analysis draws heavily from Capital and distinguishes three main fractions of capital, industrial, commercial and bank capital . Sometimes the first two fractions are collectively referred to as productive capital 3 . But Hilferding takes disaggregation of capital still further to distinguish different sectors of industrial capital such as consumer goods industries and even individual enterprises . In the latter respect Finance Capital must be seen as one of the precursors of the Marxist theory of the firm . Hilferding's conjunctural analysis is less systematic . Its focus clearly is Austria and Germany but this does not blind Hilferding to the institutional differences of other countries as has been alleged at times . Nonetheless his discussion of other countries' peculiarities within the confines of one volume tends sometimes to be cursory and, therefore, unsatisfactory . This juxtaposition of theoretical and conjunctural analysis is a feature of the whole of Finance Capital . Hilferding himself makes a different distinction between the theoretical and policy components of his project . Parts I-IV he describes as the theoretical component . These parts deal respectively with money and credit, fictitious capital, the restriction of free competition and crises and the trade cycle . In conclusion the policy component (Part V) traces the influence of developments examined in the theoretical component on economic and commercial policy . In the following sections I discuss respectively the basis of the power of bank capital over industrial capital and aspects of the dynamics of finance capital .

136 The power of bank capital

CAPITAL & CLASS In 1949 Sweezy was confidently able to assert that Hilferding had mistaken a transitional phase of capitalism for a lasting one . At issue was the permanence or otherwise of the power enjoyed by bank capital at the turn of the century . By contrast in the early 1980s Hilferding's analysis of bank capital might well appear prophetic . Before explaining why this is so it is important to stress that Hilferding employs the concept of bank capital in its broadest sense of the German model of universal banks . As the term itself suggests, universal banks perform all the important banking functions . More specifically they combine the functions of commercial and investment banking which are institutionally separate in many countries . For example, the UK clearing and merchant banks largely mirror this separation of functions . In Parts I and II ofFinance Capital Hilferding outlines the three major functions of bank capital. For him these form the basis of the power and influence of bank capital over industrial capital under modern capitalism . These three functions are concerned with the roles bank capital plays in relation to money, credit and fictitious or equity capital respectively . Let us examine these three functions as they relate to industrial capital .

(i) Money and Payments It is not proposed here to enter into a detailed discussion of the functions of money . Suffice it to note that Hilferding highlights some major developments in the form of money under modern capitalism . In particular trade between capitalists is transacted not in terms of cash payments but rather through the use of credit money such as bills of exchange or cheques . Bear in mind that a cheque is simply a bill of exchange payable on demand and drawn on a banker . Since this credit money arises in the circulation process Hilferding dubs it circulation credit . In bourgeois literature this is roughly equivalent to trade credit or the `creditors' and `debtors' items in a company's balance sheet . One may well ask how these payments between capitalists have anything to do with bank capital . Since the bulk of such payments take the form of credit money a system for setting out receipts and payments is necessary. And it is bank capital which operates such a payments or clearing system as one of its major functions under modern capitalism . Hilferding stresses the role of the payments system in facilitating trade on an even wider geographical basis . Initially credit money took the form of commercial credits (or bills) but Hilferding noted a tendency for bank credits (such as acceptances) to replace commercial credits as the form of credit money . One may still wonder as to how either the payments mechanism or the supply of bank credits could enable bank capital to influence industrial capital . Indeed Hilferding thought that this function conferred no power on bank capital . Lenin (1917) on the other hand stressed how the operation of the payments system enables banks to ascertain the exact financial position of other capitalists . It should be

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pointed out that generally only domestic banks operate the payments system in each country and that the monitoring of an enterprise's financial position could be complicated by multi-bank relationships . (ii) Capital Credit Bank capital's second main function is the supply of capital credit or bank lending in modern parlance . In this function bank capital collects as deposits the idle money of the capitalist and non-capitalist classes and lends it as capital credit . It is called capital credit since it involves a transfer of capital between capitalists . In contrast, credit money is merely a payment in the exchange of equivalents . Hilferding notes that historically the trend has been for capital credit to replace circulation credit thus reinforcing the near monopoly of bank capital in the spheres of money and credit . 5 Hilferding contrasts the longer term relationship between banks and enterprises implied by capital credit as compared with the essentially short term nature of circulation credit . However, both his conception and that of Lenin of the power conferred on banks by the supply of capital credit is couched in terms of the competition for access to credit implied by a developed credit system . They both overlook the conditionality of capital credit . That is, bank capital does not give blank cheques when advancing capital credit but rather advances it subject to detailed conditions inscribed as covenants in loan agreements which may circumscribe the activities of the enterprise concerned .' (iii) Fictitious Capital One of the insights of Finance Capital is its distinction between money and credit on the one hand and fictitious or equity capital on the other . Hilferding in Part II focuses on the mobilisation of capital or the raising of equity on the stock exchange by the modern joint stock company or corporation . He contrasts the individually owned enterprise with the modern corporation . In the former the industrial capitalist or entrepreneur owns the means of production . In the corporation the raising of equity becomes the domain of money capitalists including bankers who become the owners of the corporation . But these money capitalists are not the owners of the corporation's means of production (except in a residual sense upon liquidation) but of claims to dividends, Hilferding describes these share owners as money capitalists rather than industrialists since they can in principle convert their shares into money capital on the stock exchange at any time . Where is the role of banks in this process? Unlike Lenin, Hilferding stresses the role of the banks in the raising of new or additional equity . In this investment banking function Hilferding envisages bank capital earning a new source of revenue which he calls promoter's profits . In the modern corporation profit of enterprise is no longer appropriated by the industrialist but rather is divided into

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CAPITAL & CLASS dividends paid to shareholders and promoter's profits paid to banks . Hilferding does not mention explicitly in this context the central role of retained profits in the corporation though he does hint at it by referring to a competitive struggle between banks and corporations over the appropriation of promoter's profits . The role of banks is further enhanced in modern capitalism by the demise of the stock exchange and the appropriation of its functions by the banks . The weakness of this discussion is that Hilferding seems to have overlooked the role of other financial institutions in relation to fictitious capital . Many people will have heard of the institutional domination of the stock exchange which in the UK refers to the 51 % share of the equity market held by insurance companies, pension funds and trusts .' In this context it is worth stressing Minns (1980) finding that bank capital exercises day-to-day control over a considerable portion of pension fund shareholdings . To sum up the bank capital's major functions place it in a relatively powerful position vis-a-vis industrial capital . Both Lenin and Hilferding stress that this can lead to interlocking directorships and shareholding between banks and industry . An important point which only Lenin stresses is that the power of bank capital is predicated on the combination of all the functions . Thus for example in both the US and UK investment banking functions tend not to be the demain of the major commercial banks, a factor which appears to limit their power as compared with German banks for example . Finally, it seems strange that both Lenin and Hilferding consider the relationship between bank and industrial capital only from the viewpoint of the latter's potential dependence on banks . Neither took account of the fact that bank capital ultimately depends on productive capital for its profits . 8

The Dynamics of Finance Capital

One of the merits of Finance Capital is that Hilferding does not present just a static unchanging picture of the relationship between industrial and bank capital . He deciphers both secular and cyclical aspects in the relationship and finally the change in the relationship of the capitalist class to the state which finance capital implies . Secular Tendencies towards Concentration As mentioned in the first section of Hilferding's focus in Finance Capital is processes of concentration . However these processes are selective rather than general and concern only industrial and bank capital . How are such processes defined? Here it is curious that in Part III, where concentration is explicitly explored, Hilferding's elaboration of cartels and trusts appears confined to industry which contrasts sharply with Lenin's (1917) account of concentration within banking and industry . Another curious aspect of Hilferding's discussion is the catch-all nature of the concept of concentration and the absence of any discussion of centralisation . Instead Hilferding distinguishes concentration of ownership of property (shares) and concentration of production and convincingly argues that both processes need not be coterminous .


139

One of the recurring themes in Finance Capital is that developments within banking and industry are mutually reinforcing and it is by this circuitous path that Hilferding sees concentration affecting banking . An important result of the tendencies towards concentration in just two sectors is that other sectors tend to get squeezed . Thus Hilferding charts the decline of the commodity exchange (Ch .9) and the demise of commerce and trade (Ch . 13) and the appropriation of their roles mainly by bank capital . He gives a musical chairs picture of the roles of fractions of capital since the beginning of capitalist production . Under early capitalism, pre-capitalist fractions like usurer's and merchant's capital played an important role in accumulation . The next stage heralded in by the industrial revolution was one in which industrial capital subordinated bank and money-dealing capital to its needs . And the latest or modern stage is finance capital . Judging from history it is not clear that the thesis that merchant's capital has been squeezed out is sustainable . The other problem with concentration is that Hilferding envisages no effective limits to the process . Indeed he explicitly mentions `tendencies towards the establishment of a general cartel and . . . a central bank' (p .234) . This seems unsatisfactory to the extent that it fails to take account of the competition within national economies offered by foreign enterprises resulting from the tendency towards the export of capital which Hilferding himself identifies . The Business Cycle and Crises In Part IV Hilferding looks at the relationship between industrial and bank capital during the course of the business cycle and its fluctuations including crises . His somewhat controversial view of crises is that disproportional relations arise in the course of the business cycle from disturbances in the price structure (deviation of market prices from prices of production) and these disproportionalities can lead to crisis if the rate of profit begins to fall . Hilferding views the development of the credit system as obscuring disproportionalities during the business cycle . But the development of a banking system with cheques and a payments system has implied an elimination of the monetary crises (shortages of cash) characteristic of the nineteenth century . The concentration of banking implies a redistribution of power in their favour vis-a-vis commerce, industry and the stock exchange . This development combined with the absence of monetary crises safeguards against banking and stock exchange crises . Finally, the development of cartels exacerbates disproportionalities but cartels can divert the main burden of a crisis to the non-cartelised industries . Despite the centrality of fractions of capital in Parts I - IV of Finance Capital it is somewhat ironic that Hilferding concludes in Part V that the phase of finance capital essentially unifies all the fractions of capital and opposition to it both from workers, salaried employees and a part of the petty bourgeoisie . This unification means that capital

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CAPITAL & CLASS is enabled to exert coordinated political pressure on the state for support of its policies of domestic protective (cartel) tarriffs and the export of capital . This is a disappointing conclusion but it should not be allowed to detract from the lucidity of the analysis of fractions in capital in Parts I- IV . In the reviewer's opinion advances in our understanding of capital must engage with the concept of capital at various levels of disaggregation including the enterprise .

Why `Finance Capital' is relevant today

A common attitude on the left is the notion that money and finance do not matter . Apart from supporting a position taken by neoclassical economists such an attitude serves only to mystify an aspect of modern capitalism which has direct and indirect implications for working people's struggles . Hopefully Finance Capital will serve to rectify this by raising even if not always resolving a large number of contemporary issues relating to money and finance . One need only point to a few obvious ones to show how an understanding of them could complement and enhance ongoing work on struggles around restructuring and the labour process . The first issue is that banks are beginning to intervene more consciously in the restructuring process in the current world recession . Such intervention has taken the form of receiverships (Laker and Stone-Platt), wage cuts (Pan Am) and various rationalisations of production particularly within the UK engineering sector . The second issue is the institutional domination of shareholdings . One implication is that such institutional holdings make small to medium companies more vulnerable to takeover by larger companies (through dawn raids for example) which often involves subsequent rationalisation . Another implication is that institutions' existing predominant market share of equity in the UK allows them less room for manoeuvre in terms of switching existing investments or making new investments . This is having two consequences . The first is that since the abolition of exchange controls in 1979 the institutions have been switching to overseas rather than UK investments, thus continuing the process of deindustrialisation . Secondly since less scope exists for switching holdings in the UK the likely future trend is for the institutions to take a more interventionist stance in favour of factory closures and restructuring within temporarily unprofitable enterprises . Lastly, in urging people to read Finance Capital the reviewer is painfully aware of its exhorbitant price in hardback . The publishers must be urged to issue a paperback version without delay .

Notes This is a revised version of a talk on Finance Capital given at the 1981 CSE Annual Conference . I have benefitted from comments given there and from discussions in the Open University Financial Studies Group . 1 Lenin (1920), p .13 . 2 See for example Minns (1980) for an original study of control over UK pension fund shareholdings and Kotz (1978) and Herman (1981) for reappraisals of the question of

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3 4

5 6 7 8

financial control over the US economy . This appears to be done as a convenience and in recognition of the fact that they both earn the average rate of profit rather than as a contribution to the debate on productive and unproductive capital . Hence the term clearing banks in the UK . In the UK the Bank of England has since August 1981 been reviving the use of circulation credit as part of its new monetary arrangements . The Bank's holdings of credit money (mostly commercial bills) had increased to some £11 .2 billion by March 1982 . For further discussion of this point see Coakley and Harris (1982A) . New Statesman 16.4 1982 . For an exposition of this viewpoint see Coakley and Harris (1982B).

References BUKHARIN N . (1918) : Imperialism and World Economy, London : Merlin, 1972 . COAKLEY J & L . HARRIS (1928A) : Evaluating the Financial System, Socialist Economic Review No .2, forthcoming . COAKLEY J & L . HARRIS (1928B) : Industry, the City and The Foreign Exchanges : Theory and Evidence, British Review of Economic Issues, forthcoming . HERMAN, E . S . (1981) : Corporate Control, Corporate Power, NewYork: Cambridge University Press . KOTZ, D . (1978) : Bank Control of Large Corporations in the United States, London : University of California Press . LENIN, V . I . (1917/1920) : Imperialism, The Highest Stage of Capitalism, Moscow : Progress . MINNS, R . (1980) : Pension Funds and British Capitalism, London, Heinemann . S WEEZY, P . (1949) : The Theory of Capitalist Development, New York : Monthly Review Press.

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Review

FROM PEASANT TO PROLETARIAN: CAPITALIST DEVELOPMENT AND AGRARIAN TRANSITION David Goodman and Michael Redcliff Oxford : Basil Blackwell, 1981 . pp.238 .

Reviewed by Robin Cohen The principal arguments in this book centre around the historical and contemporary debates about `the agrarian question' . In this sense, the sub-title of the book is rather more accurate than the main title, a situation perhaps not uncommon when considerations of commerce impell the primacy of alliteration rather than exactitude . That minor irritation aside, I found this book rich in erudition and spluttering with good ideas . The authors' comprehensive account of Marxist discussions of agrarian issues and their strong familiarity with a wide range of Latin American literature, is especially impressive . The opening chapter takes us right back to the hoary issue of the disappearance of the peasantry. It is "hopelessly doomed" (as Engels believed) ; subject to increasing differention, with some sections linking with the proletariat (as Lenin argued) ; or likely to survive or persist in some form? Goodman and Redcliff provide a number of reasons why the transformation of the peasantry has been delayed, some familiar, some less so . The development of a `second feudalism', whereby shortages of labour power compelled large farmers to concede small holdings, falls, perhaps, into the category of the familiar . But they also suggest that the modem Western European peasantry survives through a combination of additional income stemming from migrant remittances, government subsidies and non-agricultural employment . In Eastern Europe, by contrast, the persistence of the agrarian sector rests largely on its maintenance of social security functions that would otherwise be borne at considerable cost to the state . While the argument for delayed transformation in Europe is generally convincing, the book contains one arresting set of statistics that suggests a rapid shift towards the original orthodoxy . In the E .E .C . countries, the number of èconomically active' people in agriculture stood at 42 million (31 % of the total) in 1950 . By 1970 it had dropped to 25 million (17% of the total) (p .16) . The category 'economically active' should always be suspect as it usually misses the hidden women ; nonetheless the decline is too great to be accounted for by sexist statistics . Without particularly trying to explain this occupational shift in Europe, Goodman and Redcliffe plunge unhesitatingly into a discussion of contemporary theories of capitalist transition in underdeveloped areas . It is very well informed but slightly confusing as Frank, Wallerstein, Laclau, ECLA, Warren and the àrticulation theorists' are held up in quick succession to their critical scrutiny and found wanting . The hints at a first synthesis are provided

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in the author's view that : "The critical problem is to incorporate in the analysis, Marxist concepts of capitalist exploitation and surplus value appropriation which do not require conditions of free wage labour and generalised commodity production" (p.54) . This task sounds a bit like squaring the circle, but the authors find powerful allies in their quest to show how capital can take control of production without formally organising it or dispossessing the direct producer . Three writers, in particular, make a decisive contribution to this problem : Banaji, who argues in terms of a concealed wage relationship which lies behind the appearance of peasant production ; Roseberry, whose article "Peasants as Proletarians" formalises the conception and looks at the conditions under which merchant capital can enter into production and create value ; and Bernstein, who, somewhat more convincingly, talks in terms of the creation of wage labour equivalents in the countryside . As Goodman and Redcliff point out all three authors are able to show a real subsumption of peasant producers which is concealed behind the formal continuity of peasant household production and the small family farm . The remaining part of the book elaborates the discussion by reference to empirical material drawn .from Peru, Ecuador and Chile, with more detailed case studies from Brazil and Mexico. The authors deploy a distinction, first posited by Lenin, between ìnternal proletarianisation', where tenants are turned into wage labourers within the confines of the estate (the latifundia) and 'external proletarianisation', where tenants with title expropriate the labour-power of former tenants who have lost even a tenuous control of the land, (the minifundia) . This distinction naturally has many variants and sub-variants in Latin America, largely derived from the continent's subordinate status to U .S . capital and the mediation of the state in renegotiating the particular forms of real subscription of the rural producer to capital . The intervention of the state has been of particular interest in Brazil where it was possible to effect a class alliance between the ascendant industrial bourgeoisie and the rural landed classes, without the former demanding (or being able to secure) complete dominance . Thus, after 1964, programmes of 'conservative modernisation' subsidised technological innovation on large farms, intensified commodity relations on small farms and effected a link with the emergent agro-industry. That this process did not lead to a rupture between the dominant class allies, was predicated (I think the authors are arguing) on the existence of huge areas of sparsely populated or virgin land . The gains for each ally could thus be presented as a variable sum game . The picture of the state acting as a successful executive committee in Brazil, is contrasted with Mexico, where the Partido REvolucionario Institucional is forced by its historical origins into at least a nominal political alliance with the campesino, even though in practice it has done little to prevent the intrusion of foreign capital or arrest rural impoverishment . They write : "Instead of an agriculture-led development model, the peasantry has fuelled the development of agricultural and industrial capitalism" (p .211) . The Mexican case also exemplifies some of the theoretical arguments outlined earlier relating to the commoditisation of peasant agriculture . This is particularly clear in the many ejados that depend on external finance, technical assistance and state-supported irrigation programmes . As the authors argue, the means of production and effective decisions over the management of the enterprise have slipped so far out of the control of the rural producers that their structural position resembles that of a proleterian proper, let alone a 'wage labour equivalent' . In other places and presumably as a general statement, the formulation proposed by Bernstein has more weight . In opening out a theoretically challenging and well informed encounter with the literature on the capitalist transformation of the countryside, the authors have provided a valuable service . I know of no other book which portrays so well the various ways in which the labour process in agriculture has been restructured by different sections of capital and the state .

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CAPITAL & CLASS

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Goodman and Redcliff are also able to demonstrate - though this could perhaps be more fully elaborated - that once a process of real subsumption has been proved to exist, a lot of the arguments about the articulation of pre-existing modes of production with the capitalist mode are called into serious question . This position can also be used to undermine theories primarily located at the level of exchange on the one hand, and the various revivals of Chayanov's concept of the peasant economy on the other . Incidentally, it is a matter of some self congratulation to note that all three pathbreaking articles cited by the authors, have been published in àlternative' journals - Capital and Class, Critique of Anthropology and the Review of African Political Economy.

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