It's not just the crooks on Wall Street
Bush can't fix a crooked system
Market plunge, falling profits reflect capitalist rot
By Deirdre Griswold
Enron. Global Crossing. Arthur Andersen. Tyco. WorldCom. The
carcasses are piling up. And now Qwest is under criminal
investigation.
Corporate America is on the edge of panic. Small investors
are either flattened or looking for security somewhere else.
Layoffs are mounting.
So George W. Bush went to Wall Street on July 9 to talk
tough about getting rid of the bad apples. It was supposed to
allay everyone's fears. Except it didn't work. The market fell
another 178 points as he was talking.
The man who until a few days ago was the fervent champion of
these capitalists--and is no stranger to insider trading
himself--just slapped a few wrists.
It's a strange period. All the big business types who were
telling the government to get off their backs are now calling
on it to save them--from themselves.
We need tougher laws, they say. More regulation. Corporate
criminals should be punished. And they're complaining that
Bush's talk wasn't tough enough.
How their tune has changed!
When they flocked to Washington
Even before Bush was sworn in as president, they were
flocking to Washington full of ideas on how to make bigger
profits. An article by Jim McTague in Barron's Online of Jan.
8, 2001, gave a vivid picture of the transition period: "The
capital is filling up with pin-striped, Chamber of Commerce
types, attracted by what promises to be the most pro-business,
anti-regulatory administration since Ronald Reagan reigned.
...
"[Bush] has packed CEOs and industry lobbyists on transition
teams that are advising his new Cabinet secretaries and agency
heads on pressing policy issues and new hires. The advisory
team for nominee Gale Norton's Department of Interior is jammed
with representatives of energy, mining and paper
companies."
Kenneth Lay, at that time CEO of Enron, was "a member of the
team advising Sen. Spencer Abraham, Bush's nominee for Energy
Secretary."
Now Lay and former WorldCom CEO Bernard J. Ebbers have
appeared hangdog before congressional committees looking into
criminal behavior by the executives of these huge corporations.
They have pleaded the Fifth Amendment rather than admit the
gory details of how they shredded papers that would show how
ingeniously they cooked the books to give the impression that
their companies were making lots of money when they
weren't.
Politicians from both sides of the aisle, who used to lick
their boots while pocketing their campaign contributions and
chanting the mantra of the nineties--"Privatize!
Privatize!"--are now jeering at these fallen angels. These
political opportunists are playing to all those millions of
investors--many of them workers with no control over their
pension funds--whose life savings are going up in smoke.
Just a few years ago these same corporate executives were
soaring like eagles. Their system was so triumphant that they
proudly emblazoned the word "capitalist" on their
mastheads.
Not just crooks but a crooked system
What has brought the titans of Wall Street so low?
Didn't they know that they'd get caught sooner or later?
What made them so reckless?
The Greek chorus of media experts is having a field day
bemoaning lack of moral fiber and honesty. But digging out
personal failings is just running away from the real problem.
Sure, these guys are crooks, but why did the biggest crooks get
to the top? Why not the "straight shooters"?
There's a gorilla in the room that nobody in the bourgeois
world wants to talk about. These frantic CEOs broke the rules
to cover up falling profits. So the next question is, why were
profits falling?
If Karl Marx were around today, he'd be shaking his head in
disgust and saying, "Read my book."
Marx isn't popular with the Wall Street crowd because he
showed in his monumental work "Capital" that crisis is built
into the capitalist system.
It arises out of a basic contradiction: the economic
structure increasingly depends on a high degree of social
integration--often millions of workers are involved somewhere
along the line in the production of a single product--but
ownership of this vast productive network is in the hands of a
shrinking class of super-rich exploiters.
Every capitalist is in business for himself. (Forgive the
gender-specific pronoun, but they still are mostly men.) He
must outdo his competitors in order to stay in business. In the
long run, this means selling his product for less.
He can lower prices by cutting wages, but eventually this
threatens to arouse the workers to class struggle and becomes
counterproductive. He can also lower prices by bringing in new
technology that reduces the amount of labor it takes to do the
job.
This is what is behind the dynamic character of capitalism,
forcing it to constantly revolutionize and expand the means of
production--regardless of what that is doing to society or the
planet.
A lot of workers know almost intuitively that when machines
start taking over more of their work and people are laid off,
the bosses have trouble finding customers--because who can
afford to buy the products?
However, there are long periods when this problem seems
negligible and capitalist production forges ahead. For a while
in the last decade it seemed that the upper 20 percent of the
population were becoming so prosperous that they would absorb
whatever was for sale.
Marx on the falling rate of profit
Marx's big contribution was to show very mathematically
exactly why profits fall just when capitalism seems to be in
its heyday. It's a situation that has puzzled many bourgeois
economists, like the Keynesians, who think increased purchasing
power can fend off a crisis. But just when the economy is
booming--and usually when wages have risen, meaning the workers
have more purchasing power, not less--the rate of profit
declines and the boom turns into bust.
The explanation for the falling rate of profit that Marx
discovered is based on changes in what he called the organic
composition of capital--what percentage of capital is invested
in plant, equipment and materials, and what percentage is
invested in labor-power.
The reason this is so important is that profits don't come
from machinery or raw materials--they come from human
labor.
Exploitation of labor is at the heart of the profit
system.
When the capitalists invest in new technology, and it saves
them a lot of money in wages, the first bosses to do so will
have an edge over their competitors. They can charge the
prevailing price for their product, but will be spending less
on wages than the others. So their profits go up. For a
while.
Eventually, however, all the other bosses have the new
technology, and competition forces down the price of the
product. The rate of profit begins to fall.
Just look at digital cameras and computers. They're much
cheaper than they used to be, because now a lot of companies
own the machines necessary to make them. Where Canon or IBM
used to make a hefty profit, they have to sell cheaper now or
lose market share.
When these companies first got the labor-saving machines to
make their products, they vastly expanded their sales--or, if
the market wasn't there to sell more output, they laid off a
lot of workers.
Either way, their capital was more and more tied up in
machines--which Marx called constant capital--and less and less
in wages, which he called variable capital. The organic
composition of their capital had changed.
The more that production is modernized, with even robots
doing the variegated work that once could be done only by
people, the more that invested capital is tied up in "dead"
labor instead of living labor.
But it's the living labor that produces profits for the
bosses.
Labor is the source of value
Only labor adds value to the materials being turned into
commodities. Many things that are needed and desired--like air
or wildflowers in the fields--have no exchange value, can't be
sold, because there's no labor in them. If someone picks those
flowers and brings them to market, or compresses that air for
use in a lab, then labor has been added and they're worth
something.
The working time we sell to a boss for wages Marx called
labor power. We get paid for our labor power roughly what it
takes to feed, house and reproduce a worker like us. If it cost
a lot of money to acquire our skills, we expect more wages. Our
labor power is more costly.
Depending on whether or not we are organized and can
struggle with the boss for more, our wages will go up or down.
We're also affected by supply and demand, just like any other
commodity.
The price of labor power varies depending on many social
factors.
But one thing is for sure. Unless we can produce more value
for the boss than he is paying us in wages, he's not going to
hire us.
He knows he's got to get his profits out of our hides.
What he spends on machines and materials is a fixed amount
that gets passed along in the price of the product. What he
spends on wages depends on the class struggle.
In a capitalist boom, all the bosses are outdoing each other
to get new technology, expand their production, and reduce the
amount paid in wages overall by cutting the work
force--although the amount paid to each individual worker may
go up slightly. Eventually this reduces the proportion of
variable to fixed capital and hence the rate of profit.
As long as the market is growing, the corporations can make
up for less profit per item by selling more items. But when the
rush for new, more productive technology has led to general
overproduction, the result is crisis: falling absolute profits,
bankruptcies, layoffs, accounting scandals. It all has a
snowballing effect as the layoffs further constrict the
market.
It's all in Marx's "Capital." And it's what the gurus of
capitalism don't want to hear. They want to think that a few
heads knocked together, or a few new regulations, and they'll
be back in business.
The last big stock market crash was in 1987. It didn't lead
to a general crisis of U.S. capitalism for two reasons. One was
a massive infusion of tens of billions of dollars into the
stock market by the Federal Reserve Bank. The other was the
prospect for a huge expansion into Eastern Europe and Central
Asia as the Soviet Union started to buckle under the pressure
of the Cold War.
However, these "emerging markets" were among the first to
show symptoms of the present crisis. The bulls on Wall Street
have nowhere to run anymore. Bush's effort to shore up his pals
in the oil and energy industry with a growing war in the Middle
East and Central Asia is not reversing the decline.
Marxism, despite its merciless analysis of capitalism's
irreconcilable contradictions, is not a pessimistic science. It
projects a rebirth of human society on a socialist basis. And
it identifies the social force capable of organizing and
leading such a millennial change: the workers, the class with
the least to lose and the most to gain from giving capitalism
the boot.
Reprinted from the July 18, 2002, issue of
Workers World newspaper
This article is copyright under a Creative
Commons License.
Workers World, 55 W. 17 St., NY, NY 10011
Email: ww@workers.org
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