Karl Marx and the Reopening of His System

By Edward S. Herman

This article is an updated version
of a talk given at the Brecht Forum,
May 16, 1996.

Back in 1889, a book by the Austrian economist Eugen von Bohm-Bawerk was translated into English with the dismissive title, Karl Marx and the Close of His System, and Marx has been attacked and his system buried and reburied by a stream of mainstream economists ever since. For contemporary critics, the coup de grace to Marxism was provided by the collapse of the Soviet Union and the global setbacks to socialism elsewhere over the past decade. History is over; capitalism has won.

We should note, however, that there were two Karl Marx’s: one was the activist and enlightenment optimist, who foresaw an imminent collapse of a brutal capitalism and the ushering in of a classless state and utopia. This Marx was seriously mistaken; capitalism had far more vitality than he perceived, a “dictatorship of the proletariat” does not evolve easily into a democratic community, and classless utopias are still purely imagined communities that the human race will be hard put to construct.

The second Karl Marx was an exceptionally intelligent and learned observer and analyst of capitalism. This Marx’s integration of the dynamics of technological change, political economy, and macro and micro economics provided a formidable system of thought that has never been refuted. It is true that here also he failed to give adequate weight to the impact of rapid economic growth, unionization and capitalist democracy in yielding substantial wage increases and welfare state benefits to the working class. But this only requires qualifications that leave the essential analytical structure intact. Furthermore, Marx’s errors in forecasting capitalist evolution may have to be reassessed in the light of developments in the post-socialist era.

Capitalism’s victory over socialism has been quickly followed by more aggressive class warfare, strong tendencies toward income polarization and immiseration of large numbers, and global attacks on the social wage and welfare state. This suggests that the era of rising wages and welfare state benefits may have been a long interlude, and worker golden age, based on capitalist weakness. With globalization and the collapse of the socialist world greatly strengthening capital, Marx’s theory of immiseration may turn out to be a valid long run forecast. Even if this bleak possibility is not realized, the enhanced power and freedom of action of capital have given Marxian economics a new salience.

This is suggested not only by the more favorable global investment climate and renewed aggressiveness of capital, but also by the statements of international financier George Soros and other representatives of capital, warning that capital may be overreaching and calling for restraint in the interests of avoiding social upheavals. Morgan Stanley economist Stephen Roach refers to “slash and burn corporate restructuring” and “worker backlash” in admonishing his corporate confreres. A report of a group of young French managers, expressing conviction “that nonregulated capitalism will explode as communism exploded,” calls for a new social contract that would reduce growing social divisions. The World Bank and IMF repeatedly warn that poverty is increasing and that more attention should be paid to this and to education — while of course supporting policies (privatization, budget cuts, tight money, focus on exports) that contribute to the persistence of poverty, increasing inequality, and huge educational deficits.

The Marxian core

The beauty of the Marxian system, and the reason for its continued and perhaps increased vitality, is its focus on the core elements and dynamic and evolving character of capitalism. It may be useful to review briefly the basic ideas and their applicability in the New World Order.

1. The profit and accumulation drive. For Marx, accumulation was “The Moses and all the prophets” of the capitalist class. Capitalists are “rational misers,” who seek profits to invest and enlarge their capital stock, in an incessant quest that is the heart of the capitalist process. (Profit maximization is also central to orthodox economics, but traditionally in a static system, with given technology and factor prices, and with profits supposedly “competed away” leaving only a “normal rate of return” to owners.) Bottom line pressures and the drive toward profitable growth have hardly slackened with the maturation of capitalism. The centralization of corporate control and displacement of family-owned firms by giants with diffused ownership, hired managers, divisional organization, and profit centers and targets, has, if anything, increased the impersonality and bottom line drive of business. The growth of financial markets and institutions, with their strong pressure for profit performance, and the associated emergence of a takeover market, has also intensified the profit focus.

Competition works in the same direction. While concentration has limited competition in some sectors, it persists, threatens and worries managers everywhere. New products, new technologies, entrants from abroad, and breakdowns in agreements among rivals, cause seemingly impregnable giants like GM and IBM to undergo periods of serious losses. Competition and its threat keeps all managers nervous and seeking opportunities to cut costs or expand sales.

The idea that corporations would become more caring and “responsible” as capitalism matured is a fallacy that serves the system’s ideological needs, but which is confuted by experience, by the factors just discussed, and by theory — notably, Marxian theory.

2. Technological change as a system imperative. Marx saw with great clarity that capitalism was characterized by a continuous revolution of the means of production. This is driven by the profit drive, the constant pressure and threat of competition, and the incessant need to cut labor costs. This makes capitalism a dynamic and technologically progressive system, but one in which capital designs the technical change to serve its needs, while labor bears the main social costs of the dynamism.

Technological change today continues to serve capital; the new information technology is being used to replace skilled labor with machines and software programs. It has also permitted better managerial monitoring and control of the work force and made the use of contingent labor and spatial dispersal of work easier. This deskilling, reengineering of work, and associated downsizing and outsourcing has been carried out with the enthusiastic support of the stock market and at least tacit support of the political establishment. In the capitalist tradition, and helped along by the weakened condition of the labor movement, there has been minimal concern over the cost in labor’s losses and insecurity. (For a good account of these developments, Simon Head, “The New, Ruthless Economy,” New York Review of Books, Feb. 29, 1996.)

3. Reserve army mechanism. Marx put great weight on capital’s desire and need for slack labor markets. Technological change and cyclical downturns were the key mechanisms whereby this was accomplished in his system. The former is as important as ever; and the latter also plays a major role in its modern variant, in which an adequate level of unemployment and underemployment is maintained by deliberate policy action to keep the labor market loose enough to restrain wage increases. This may be supplemented by controlled recessions that give labor a more serious jolt, as in the Reagan-Volcker tight money program and deliberately imposed recessions of 1980 and 1981–82. It may be supplemented by union busting activities (Patco, NLRB actions, permitting private union-busting in violation of the law); by privatization and shrinking government, thereby diminishing a relatively protected labor sector; and by policies weakening the safety net and forcing more people into the job market.

4. Globalization. Marx was well aware that capitalism was from the beginning a global system, and he stressed both its shattering impact on the imperial colonies and the role of overseas looting in “primitive accumulation.” The New World Order presents a stage of globalization not envisaged by Marx, where corporations have branches and subsidiaries abroad and increasingly make investment and production decisions on a global basis. In Marxian terms, the reserve army of labor is being globalized, with firms able to tap pools of cheap labor in Mexico, Indonesia, the Philippines, and China, and bargain for terms friendly to investors across national borders as they have long done among cities and states within countries.

It is obvious that this cross-border extension of the reserve army fits the Marxian model distressingly well, with capital gaining a new bargaining advantage and threatening steady downward pressure on wages and working conditions in the high wage countries. The organizational challenge to labor is immense.

The threat to labor is exacerbated by the political/economic effects of globalization, with the nation state, like labor, pressured and threatened by the mobility of finance as well as industrial capital. Policies not helpful to capital will be punished by market movements that raise interest rates, lower exchange rates, and shift investment abroad. The welfare state is placed under permanent siege in favor of the de facto “corporate welfare state.”

5. Instability and crises. Marx believed that the dynamism of capitalism, its unplanned nature, structural imbalances, and tendency toward speculative excesses, made the system inherently unstable and crisis prone. And he thought instability would increase and help bring capitalism to an end. But while the system has been unstable, since World War II it has done well in containing recessions and periodic mini-crises. Nevertheless, the immense global credit structure, pervasive speculation and innovative forms of risk-taking, privatization and the shrinkage of the role and power of governments, global interdependence, and the absence of a global lender of last resort, make the system vulnerable as never before. The current South-Asian crisis has for the first time combined credit and speculative excesses with an environmental crisis, in which the smoke pall from uncontrolled Indonesian fires has curtailed economic activity and frightened foreign investors over a wide area. The dynamic, exploitative and unplanned nature of global capitalism make further unpleasant combinations and surprises highly likely. What their final outcome will be remains a puzzle.

6. Control of the State. Marxian theory has always had a huge edge over mainstream economic thought in that the State is treated as the subject of analysis, not as an external force whose decisions and actions are above the battle. In a class society the State tends to be dominated by the class with preeminent economic power, whose interests become the “national interest,” and State policy follows accordingly.

This type of analysis is surely pertinent to understanding the New World Order, where capital’s political aims are clear and the new instruments at its command are potent. Through its enhanced bargaining position with, and disciplinary powers over, states, and through its control of the IMF, World Bank and WTO, capital is imposing a counterrevolutionary politics everywhere, featuring privatization, fiscal and monetary conservatism, and cutbacks in the welfare state. It has stripped democracy of substance by enforcing a condition where there are “no other options,” making social democratic politicians into servants of neoliberal policies. Capital has reversed the earlier postwar willingness and need to share productivity gains with the majority; now the only worry is social order, which it and its agents may be inclined to maintain more by the use of force than serious economic concessions.

7. Domination of superstructure of law and ideology. Marx saw law and ideology as a reflection of class power and interest, and he often sneered at the bought scribblers of the press and academia. He was well aware of the capacity of established ideas and institutions to confuse and pacify the working class, and Gramsci’s analysis of ideological hegemony was developed within a Marxian framework.

That analysis is highly relevant today, and much left critique focuses on media commercialization and concentration, the culture of entertainment and diversion, the weakening and defanging of the public sphere, and the naturalness with which the market-based media impose the dominant ideology and marginalize dissent. A modern development of note has been the corporate funding of a large network of thinktanks, to elevate the status of conservative thinkers and saturate the media and intellectual environment with their market-friendly ideas. This operation of the market and division of labor in helping manufacture consent to corporate ideology, while problematic for orthodox thought, which envisages ideas competing on a level playing field, fits Marxian analysis very comfortably.

In the evolution and working of the law as well, the power of class interest has also long made for an uneven playing field, as illustrated by the reworking of the 14th amendment, designed to help the former slaves but converted into a protection for the rights of the corporate “person,” and the 1976 decision Buckley vs Valeo, which made corporate election spending a right under the First Amendment. Money shapes laws, regulation, and law enforcement, so that even well intended legislation can be nullified and transmuted into corporate service through deliberately ambiguous language that allows reshaping by litigation. In the application of the law, the legal industry has been ever more intensively mobilized to serve the corporate community through techniques of delay and harassment that have resulted in large-scale abuse (for an outstanding account, Ralph Nader and Wesley J. Smith, No Contest: Corporate Lawyers And The Pervertion of Justice in America).

Concluding Note

Marxian thought has always been useful in analysing the workings of capitalism, with its focus on the core elements of capitalism and its view of capitalism as a dynamic system. With capitalism now freed from some of its earlier constraints, and with the entire globe as its bailiwick and source of a reserve army, this purer and more ruthless capitalism may be making the law of increasing immiseration a reality. Whether or not this is so, the capitalism at work can be much better understood within a Marxian frame than by reading Paul Samuelson, Paul Krugman, Milton Friedman, or the 1997 Nobel laureates who have enlightened the world on the theory of options.

Sep 16, 2000