This diary series is a slightly edited version of Contradictions of Capitalism, a book that I wrote in the early 90's which is still available now on Amazon. I have updated some parts of it to reflect the very important changes in the corporate economy since the mid-1990s with the appearance of a global economy rather than a national, which has important effects which much of the socialist movement has still not fully grasped.
Previous entries in this series can be found here:
Part One: http://www.dailykos.com/...
Part Two: http://www.dailykos.com/...
Part Three: http://www.dailykos.com/...
FOUR: Monopoly Capitalism
At first, the battle between the capitalists begins on roughly equal terms. As certain capitalists begin to gain a slight advantage, however, the character of the race changes. If a certain business owner is able to introduce new machinery or technology, for example, he will be able to increase the productivity of his workers, and thus push the price level of his commodities lower and capture a larger share of the market.
Using the example given earlier, for instance, let us assume that the capitalist is able to introduce new machinery capable of producing two commodities per hour instead of just one. Now, he is able to use $10 in raw materials, $4 in depreciated machinery (we assume that the new machinery is more expensive than the old) and $5 in wages to produce two commodities with a combined value of $40. The surplus value is now $21 instead of the earlier $7.
This capitalist can thus afford to pay higher wages in order to avoid labor unrest. More importantly, he is able to lower his selling price per commodity while still maintaining a high profit rate, thus underselling his competitors and expanding his market.
Capitalists who cannot afford the higher outlay for constant capital will inevitably lose the race and drop out. The ever-increasing amount of capital needed to obtain state-of-the-art technology makes it more and more difficult for new competitors to arise in place of the old ones. Thus, the gradual result is the death by attrition of most competition, and the survival of an ever-decreasing number of larger and larger capitals.
This process can be seen in virtually every industry. In every economic sphere of capitalist society, the market is dominated by a tiny handful of huge capital conglomerates which easily crush all attempts at competition. The handful of automobile manufacturers (the Big Three) and the small number of oil companies (the Seven Sisters) which dominate their industries are but the most well-known examples.
Thus, capitalist competition inexorably produces a situation in which competition virtually disappears. While this state of affairs should properly be referred to as an “oligopoly” (where a handful of enterprises controls the industry), rather than a “monopoly” (where one enterprise dominates), the term “monopoly” has become so widely used that we will continue to use it here.
One of the most important tools in this centralization of capital is the joint stock company or corporation. Corporations are formed when a number of capitalists agree to unify their capital under a joint management. This has the effect of greatly increasing the capital resources available to the enterprise, enabling it to invest heavily and expand rapidly where smaller capitals cannot. For instance, ten capitalists with $1 million each in individual capital can unify these into a joint stock company with $10 million in capital. Since this larger capital is capable of much faster growth and greater accumulation than a series of individual capitals would be, it is more efficiently able to overcome competition and increase surplus value than its individual components could. These higher surpluses can then be divided up among the consortium of capitalists who make up the corporation, in the form of “dividends”.
Since the joint stock may be owned, in small blocks, by literally thousands of people, it may appear as though the corporation decentralizes the ownership and control of capital. Many corporate officials have made this argument, asserting that we have entered an age of “people’s capitalism”, in which the control of wealth is being spread democratically to the masses of working people through stock ownership. In reality, this contention is nonsense. The corporate structure only serves to centralize greater control of capital in fewer and fewer hands.
According to the principles of corporate operation, the shareholder or consortium of shareholders who owns a controlling interest of the capital stock (legally, this is 51%, but in practice it can fall to as low as 25% or even 10%) is given decision-making power over all of the rest of the corporation’s joint stock, no matter how many other individual stockholders there might be. Further, when we remember the fact that the major stockholder in a corporation may in fact be another corporation, we can see that the control of stock may stretch tentacle-like over huge distances.
For instance, let us suppose that Capitalist Jones owns 51% of the stock in Corporation A, and that A has a capital of $2 billion. Corporation B has capital of $3 billion, and is 51% owned by Corporation A. Corporation C has $2 billion in capital and is likewise 51% held by Corporation B.
The centralization is apparent. By virtue of his owning 51% of one company, our individual capitalist in effect has control over all three corporations and their combined capital of $7 billion. His controlling interest in the first company, which controls the second, which in turn controls the third, centralizes the control of all three companies and all of its individual stock shares into the hands of one man—Capitalist Jones.
Capitalist Jones is in an enviable position. By agreeing to return a portion of the surplus value in the form of dividends, he gains access to capitals which are far beyond his individual means, allowing him to enrich himself even more efficiently. And, since the ownership of corporate stock is itself virtually monopolized by a handful of wealthy capitalists (historically in the US, the top 2% of the population has always owned 50-60% of all corporate stock), Capitalist Jones has very few competitors who can wrest control of these assets from him.
Thus, rather than “democratizing” the economy, the joint stock company only centralizes it further. As a side effect, the joint stock company, with its agreed-upon joint management, has in effect removed the controlling capitalists from the sphere of production. The actual day-to-day management of the corporation is left to a team of hired executives, managers and directors, who are responsible solely to “the stockholders” —i.e., to Capitalist Jones.
This managerial apparatus is not in itself capitalist—that is, it does not extract any surplus value by virtue of owning capital. It is true that, in many corporations, the major shareholders are themselves members of the managerial apparatus, but this is peripheral to their role as capitalists. To the extent that the managers or executive officers of a corporation are not in themselves the major shareholder, they cannot be viewed as capitalists in the strict sense of the term (although they are certainly capitalist in their outlooks and value systems). They are merely “hired guns” who manage the capitalist’s interests for him in exchange for part of the spoils.
The popular distinction between “labor” and “capital” as being “those who work” as opposed to “those who don’t” here reaches its clearest form. The corporate capitalist, besides performing no labor in the process of production, now is not required to take part in directing or managing it either. As he does with the laborer, he merely buys the ability of somebody else to do this for him. In essence, the corporate capitalist simply sits back and lets other people produce his living for him. His living comes, not from his “management skills”, nor from his “entrepreneurship”, nor from his “superior business acumen” —it comes solely from the fact that he, and he alone, owns capital.
The huge masses of capital created by the joint stock company quickly propel it to the pinnacle of economic power. If the normal competitive process were allowed to play itself out, there would eventually be one corporation controlling each industry, until finally all of society’s productive forces would be taken over and monopolized by a single octopus-like corporate conglomerate.
In reality, the process is halted long before this point is reached, by the capitalists themselves. Once a handful of large corporations grow to dominate the industry, the competitive process becomes too destructive to each company. Since the corporation’s constant capital costs and its outlays for management and distribution soon grow to huge levels, competition which leads to lower prices may push profits below the levels needed to pay for these relatively fixed costs.
To avoid this danger, the monopolist corporations agree between themselves to swear off direct price competition and to instead divide the market amongst themselves in the form of a trust or cartel, which provides a modus vivendi for the capitalists. Now, instead of “live and let die” competition, the cartel allows the monopolists to settle their scores in a “live and let live” arrangement.
This does not mean, by any stretch of the imagination, that the individual members of the cartel are any less hostile to one another. Indeed, in the event that a crisis or unexpected setback cripples one member of the cartel, the others would lose no time in falling on it like a pack of piranha, dismembering and consuming their erstwhile partner. For the most part, this does not happen because no member of the cartel is strong enough to deal a fatal blow to its counterpart without risking a lethal retaliation.
Under monopoly capitalism, partial control over the supply of commodities allows the capitalists to charge prices which are higher than the value of the commodities, thus increasing their rate of profit. Earlier, we assumed that the commodities which were produced by capitalists were exchanged at their labor value, and that the final monetary equivalent of this value was determined in the capitalist marketplace. To understand the monopoly pricing system, we must examine this capitalist market relationship in more detail.
When the available supply of a commodity is larger than the demand for its exchange-value, we could say that its labor value is “too high”, i.e., too much labor power was expended to produce these commodities. Since effective demand is unable or unwilling to absorb this supply, a portion of this total value must be considered as “socially unnecessary”. In turn, the exchange value of these commodities (“price”) will be realized, not at the higher level of labor power which they actually contain, but only at that fraction which is socially necessary. In other words, the actual price received in the exchange of these commodities will be less than it would have been if all of the commodities had been socially necessary.
When the supply of commodities is lower than the demand for them, however, the situation is reversed. Now, “too little” labor power has been expended, and the value of exchange is temporarily higher than the labor value actually embodied in these commodities. Surplus value on these commodities is higher than normal.
Under conditions of competition, no individual enterprise is able to exert enough pressure on either the supply or the demand of a commodity to influence its price, and commodity prices tend to fluctuate around their actual labor value. Under monopoly conditions, however, such an influence is possible.
Within a competitive capitalist system, profit rates tend to be the same everywhere, since, if extra high profits were to be made in a particular industry or sphere of the economy, small mobile capitals will flow into that area, increasing the labor value invested in the total output and pushing it closer to the level which is socially necessary. In other words, high-profit industries will attract other capitalists, increasing the supply and lowering prices until the average rate of profit has once again been established.
Thus, the selling price of any commodity can be viewed as the cost of production (constant capital plus variable capital) plus a surplus which is equal to the average rate of profit. If the average rate of profit is, say, 20%, the capitalist will set a price such that his investment will return an average of 20%.
Overproduction or underproduction of the commodity, then, has the effect of raising or lowering the additional amount over the cost of production which is actually realized as surplus value. The marketplace can therefore be viewed as the capitalist mechanism for determining how much expended labor power is actually “socially necessary”.
Capitalists who set their prices high so as to realize a higher profit rate—say, 45% instead of 20%—will only be able to realize this extra profit if all other producers do the same. Otherwise, other producers will sell their commodities closer to their costs of production, thus underselling the higher-profit commodity and driving it from the market. Or, if capital is free to flow into this super-profitable industry, this new investment will lower prices until the average rate of profit is again established.
Monopolists, however, are able to distort this process and produce super-profits for themselves. The steadily-increasing costs of the machinery and technology needed to enter the monopolist industries tends to restrict the entry of outside capital. At the same time, the monopolist cartel has agreed among themselves to avoid competition through the method of underselling each other in price wars. Thus, the monopolists are free, within certain limits, to set their prices as much above their cost of production as they wish.
Of course, there are upper limits to the prices the oligarchists can charge. Although competition within the industry has come to a virtual end, the monopolists must be aware of competition between industries. If monopolists drive the price of steel higher than the purchasers can or will pay, these purchasers will abandon steel for cheaper aluminum or plastics. Also, if monopoly prices are set too high, monopolists from other nations who are not yet members of the cartel may move in and undersell in order to capture the market. Japanese monopolists in the auto and electronics industries have proven that they are even willing to sell at a loss for a time in order to penetrate and capture the American market, thus breaking the rules of the cartel and provoking monopolist cries of “unfair competition”.
Within the monopoly cartel itself, moreover, the opportunity exists for certain members to obtain profit rates even higher than the average cartel super-profit. Suppose that three automobile manufacturers form a cartel, and their individual capitals are broken down as:
Company A:
4 million C + 1 million V + 1 million S = 6 million
Company B:
6 million C + 1.5 million V + 1.5 million S = 9 million
Company C:
8 million C + 2 million V + 2 million S = 12 million
Let us further assume that the total value of A is contained in 3000 automobiles (with a value of 2000 each), that B produces 4000 autos at 2250 each, and C produces 7000 with value of 1715 each.
In each enterprise, the profit rate is S/C + V, or 20%. The final selling price is determined by adding the cost of production (C+V) and the normal 20% profit. Thus, Company A will sell its cars at 2000, B at 2250 and C at 1715.
Under competitive conditions, it is obvious, Company C will be able to undersell the others and ruin the cartel. The only way to avoid this is to have all the members of the cartel sell their commodities at approximately the same price. (Since “price-fixing” is supposed to be illegal, most cartels instead use the “price leader” system, in which one member of the cartel—usually the strongest—announces a price increase, to be shortly after followed by similar increases by the other members of the cartel. In this manner, the fiction of “independent pricing through the marketplace” is maintained and pesky anti-trust actions are avoided.)
The cartel’s agreed-upon price, however, must allow the least profitable member of the cartel to realize at least the average rate of profit. The weakest member in our example is Company B, which must sell its cars at a price of 2250 to realize a 20% profit. The cartel will, therefore, set its price at 2250 per unit.
Company B thus sells its 4000 cars at 2250 each and receives 9 million total, a surplus of 1.5 million. Company A, however, also sells its cars at 2250 each, and realizes a surplus of 1.75 million. Company C sells its cars at the same 2250 each, and realizes a surplus of 5.75 million. Company A’s profit rate remains 20%, but B’s has increased to 35% and C’s has leaped to 57%.
In advanced monopoly economies, it proves to be a disadvantage for the cartel to continually re-invest its huge surplus values into expanded production in its own field of industry, since, as we shall see later, this aggravates the danger of overproduction and causes a fall in profits. Instead, the huge monopolies are forced to diversify their capital and invest in areas which are not at all related to their original industry. Thus we are led into the spectacle of tobacco companies owning food distributors, electric companies owning TV networks, and discount stores owning book chains.
This same quest for profits drives the monopolists to extend their reach overseas. The “undeveloped nations”, with their cheap labor and untapped sources of cheap raw materials, produce a much higher rate of profit than does capital invested in the home country. The monopoly capitalist thus seeks to dominate this source of super-profits by establishing his own capital in these nations, where the superior productivity of his technology will dominate the market, crowding out and exterminating the indigenous capitalist enterprises. The monopolists soon establish de facto control over the foreign nation’s economy, and proceed to suck it dry of raw materials and labor resources while repatriating the profits back to the home country.
Through trade with the undeveloped nations, the monopolists are able to realize huge surplus values. The enormous profitability of this trade lies in the fact that commodities are exchanged at the labor value represented by the time necessary to produce them—as measured from the point of view of the purchaser. In the undeveloped nation, with its lack of industrialization and mechanization, the amount of labor necessary to produce a single commodity will differ markedly from that in the industrialized nations.
In a non-industrialized nation, for instance, it may take a native three hours to produce 100 pounds of spun cotton. In industrialized nations using power machinery, it may take only one hour to produce the same 100 pounds. When natives sell their cotton to the industrial nation, therefore, they will receive, not the three hours of labor value which they put into it, but only the one hour of labor which is socially necessary for its production in the industrialized country.
Conversely, the finished clothing produced by the monopolist’s machinery may take one hour of necessary labor, while the native with his hand loom may expend six hours to make the same piece of clothing. The industrialist is thus able to exchange the clothing to the native, not at the one hour of labor which was expended, but at the six hours of value which are socially necessary from the native’s point of view.
The economic relationship between the monopolist and the native is inherently lopsided and exploitative. The native is forced by economic necessity to give up commodities for less value than was invested in them, and obtains the monopolist’s commodities for a higher value than they contain.
In monetary terms, the picture looks like this: The native produces 100 pounds of cotton at a price of $15. The industrialist, however, can produce the same amount at a cost of just $5. Thus, if the native is to sell cotton in the industrialist’s market, it must be sold at a competitive price—at a price of $5 rather than the $15 it is worth.
Similarly, if we assume that the monopolist can produce an item of clothing at a cost of $5 but the native must use a value of $30 to produce the same item, the industrialist can push his prices up to $30 and still be competitive with the native manufacturer. The native pays $30 for a piece of clothing rather than the $5 the monopolist would get for it in the industrialized country.
The native is thus cheated in the buying and in the selling, producing a steady supply of super-profits for the monopolist. The undeveloped nation is systematically drained of its wealth, and these profits flow back into the monopolist coffers.
This system forms the basis for “economic imperialism”, in which capital is exported by the monopolist and super-profits are imported by him.
Naturally, the indigenous merchant class which is thus being crowded out of its own market will resist this intrusion, and the native government will attempt to shut the foreigners out with restrictive trade barriers, tariffs and quotas. It is in the interests of the monopolists to prevent this by installing a government which is friendly to the monopolists (or which can at any rate be influenced and manipulated by them).
Thus, the undeveloped country becomes an economic “neo-colony”, ruled by a government which safeguards the interests of the foreign monopolists. In ancient China, this economic role was carried out by a class of bureaucrats known as compradors, and the puppet states set up by monopoly imperialists are known today as “comprador states”.
To protect this comprador state against rival monopolists from other nations and from rival factions within the dominated neo-colony, the monopolists need the ability to use international diplomatic power to insure the political viability of the client state, and also the ability to use military force to defend the comprador state against internal and external opponents. The monopoly capitalists, on their own, are unable to provide these guarantees. But they do have a partner which can serve in this role, and which can further safeguard the status of the domestic monopoly cartel. This partner is the national government of the cartel’s home nation.
Legally, the state is obligated by antitrust laws to prevent price-fixing and to break up cartels if they form. In reality, however, the complete domination of the state by monopoly capitalists insures that the interests of the monopolists are protected by the government. The widespread presence of corporate officers in high government positions and the almost total domination of the election process by moneyed interests demonstrates the Siamese-twin-like relationship between the national government and the national economic elite.
The national state, then, is in reality a junior partner of the monopoly interests, and it protects and supports the profits and privileges of the corporate capitalists. It is no accident that, as it was originally written, the US Constitution granted the right to vote only to white male property-owners. It was only after the moneyed interests had gained domination over the electoral process (and after they had been pressured into it by organized resistance) that non-property owners were granted the privilege of voting. Since the monopolists dominate the electoral process, this privilege in essence decides nothing more than which of two white middle-aged wealthy property-owners would get to administrate the corporate system for the next four years.
Throughout history, the power of the state has consistently shown itself to be at the disposal of the monopolists. During the bitter wars against unionization in the late 19th and early 20th centuries, the military force of the state was again and again called upon to break strikes, suppress local organizing attempts and attack unionists, thus propping up the interests of the capitalists against those of the workers.
Even those areas of state intervention in the economy which are widely viewed as being in the interests of the workers often had the real goal of propping up the monopolists. Programs such as unemployment insurance, worker’s compensation, the abolition of child labor, or the eight-hour work day were not granted out of the goodness of the corporate heart. These programs (all of which were labeled as “socialistic” by the monopolists) were forced upon a resisting business elite by bloody strikes and insurrections led by organized labor. It did not take long for the monopolists to realize that, if they did not give in and make some concessions, the workers would pick up guns and take everything. So the capitalists gave up a little in order to save the rest. If things are to remain the same, the saying goes, they will have to change.
In other instances, the state props up capitalist interests by direct control of selected corporate enterprises. In the popular view, “socialism” simply means the government ownership of industry. It can be seen, however, that government ownership of industry in the monopolist nations is not at all “socialistic”, but is solely intended to prop up the existing order.
The industries which are most often placed under government ownership are the transportation and utilities networks. These industries are vital to all capitalists, since they determine the way in which commodities are produced and taken to market. If these vital industries were in the hands of private owners, it would represent a mortal threat to all other capitalists. If the electric industry were in the hands of a private monopolist, for instance, the capitalist who controlled it would be able to cut off the supply of power to any capitalist at will. Similarly, private owners of transportation networks can restrict the access of any capitalist to market. Thus, the monopolists who controlled these key industries would have virtual power of blackmail over the entire capitalist structure—by driving up the prices for their services, they could ruin anyone they desired.
The solution to this threat has been to place such key industries under the control of the state, which is free from the interests of any single capitalist but not free from the interests of the capitalist system as a whole.
In many instances, the state will also intervene in a declining industry which is important to the national economy as a whole. Huge corporations may extend their tentacles into virtually the whole economic system, and a crisis in such a corporation inevitably has a ripple effect which will impact the whole economy. The automobile industry, for instance, has been calculated to consume as much as one-third of the US economy. If a major auto manufacturer falters, the resulting crisis will grow to encompass the other industries which are largely dependent upon the auto industry, such as steel, rubber, glass and electronics. These in turn produce declines in secondary industries such as ore mining, oil drilling, etc. Thus, the fallout from a single economic failure may impact virtually the whole national economy, dragging everybody else down along with the unfortunate corporate failure.
This threat to everyone’s profits is, once again, dealt with through the intervention of the state. To prevent the failure of an important corporate conglomerate, the government will use loans or subsidies to guarantee that the industry remains profitable. In extreme cases, the state itself will be forced to take over the administration of the enterprise in order to insure its continued survival. Examples of these kinds of state intervention are the US government bailouts of Lockheed and Chrysler and the nationalization of key industries by the British and French governments.
The most important role which the state plays in monopoly capitalism, however, is in foreign economic expansion through neo-colonies. The government actively uses its political and military strength to protect the foreign interests of the monopoly corporations. Government diplomatic ties establish and legitimize the comprador states demanded by the needs of international capital. State economic aid to the comprador nation ties it directly into the monopolist financial system. State military power defends the comprador government from internal subversion and from the predations of rival imperialist blocs.
Thus, the highest stage of capitalist development is that of economic imperialism. In this stage, capital is fully centralized into monopolistic corporations which do away with the competition associated with earlier capitalism. The need for these monopolists to expand their interests overseas brings the already close ties between the economic elite and the political elite even closer, as the power of the national government is used to insure the economic and political domination of the neo-colony.
It is this mad scramble to expand profits, however, that sets the stage for increasingly sharper contradictions and crises which cripple the monopolist system. Eventually, these stresses will become too great, and the monopolist system will meet its doom.