With the recent collapse of the former Soviet-dominated bloc in Eastern Europe and then of the Soviet Union itself, it could have been expected that the advocates of private-enterprise capitalism would have rejoiced at the apparent triumph of the “free market”. But despite the best efforts of some sections of the media, the celebrations have been unmistakeably muted.
Having proclaimed that the “collapse of communism" showed the strength and invincibility of Western-style capitalism, the John Majors and George Bushes of this world have rather been left with egg on their faces. For not only has the last year proved beyond doubt the manifest failure of the state- capitalist bloc in the East, it has laid bare the current economic mess of the capitalist states in the West.
Far from demonstrating the prosperity and economic superiority of the USA, Britain. Germany and Japan, the capitalist system has ushered in probably the worst slump since the Second World War. Industrial production is not just falling in Russia—it is falling in the supposedly “successful” capitalist nations too.
Why, then, has fate seemingly conspired so cruelly against the Western politicians who could now be expected to be enjoying their hour of glory? To understand this, it is necessary to understand why, for some periods at least, output and growth are able to expand in capitalist society.
In the capitalist system of production, economic growth appears in the form of the accumulation of capital, capital being a sum of values invested in the means of production with the object of creating further value. The accumulation of capital is the driving force of capitalism and crucially depends on the creation of a surplus value in the production process by the working class (that is, value created by workers in excess of that received back as wages and salaries), together with the realisation of that surplus value when the commodities that have been produced are sold on the market. Surplus value is then divided between the various sections of the owning capitalist class as ground-rent, interest and profit.
Though the capitalist class receives a privileged income because of its ownership of capital, it would be a mistake to think that this is the principal reason why capital is invested to expand production. Part of the surplus value created by the unpaid labour of the working class is of course, consumed by the capitalists in the form of luxury goods and so on, but a significant part is transformed into additional capital and is re-invested in production, to buy raw materials, plant and equipment and the working abilities of wage and salary earners.
Competition provides the general motive force for the accumulation process, and enterprises must accumulate capital as rapidly as possible if they are to survive. This involves maximising the surplus value wrung from the working class and producing commodities as cheaply as possible by increasing the productivity of labour through mechanisation, robotics and the like.
So long as capital is able to accumulate in the hands of the capitalist class, re-investment occurs and production expands. More value is created by the working class, more commodities are sold, more profits are made and the additional capital re-enters the production process and serves to expand production and output further. However, as the history of capitalism has repeatedly demonstrated, this process is in practice always interrupted sooner or later.
Points periodically arise—corresponding to the onset of an economic crisis—when the circulation and accumulation of capital is severely disrupted. Enterprises find that they have over-accumulated and over-expanded their operations for the particular market they are selling to. Commodities cannot be profitably sold and the surplus value embodied in them is unrealised. Further accumulation of capital and reinvestment in production is thus at the same time rendered both more difficult and less worthwhile.
Often, this process of “over-accumulation” occurs in industries producing consumer goods, with enterprises responding to favourable price signals flooding the market with more commodities than can be profitably sold. A halt in investment then takes place, which can spread quickly to those sectors of the economy that have been supplying these consumer goods industries with producer goods such as, say, machinery and robotics equipment, commodities not intended for consumption but for the production of other commodities.
In this way the economic crisis can become generalised and a slump can set in. At other times the drive to rapidly accumulate capital will lead to a disproportionate growth in some of the producer goods industries themselves and the economic down-turn will spread from these sectors of the economy. An over-accumulation of capital in key producer goods industries will lead to an overproduction of producer goods and the likelihood of real wage cuts for some workers and redundancy for others, this leading in turn to a fall in demand for consumer goods.
So, although the accumulation of capital provides the spur for wealth creation and growth under capitalism, capital accumulation occurring within the context of capitalism's unplanned and anarchic production process leads to key—and previously profitable industries over-expanding, causing cutbacks in production and unemployment. After a (possibly prolonged) period of stagnation, a destruction of stocks and a gradual devaluation of capital take place, helping to provide the conditions for further accumulation to take place and for a recovery from the slump
The accumulation of capital has also been at the heart of the problems being encountered in Russia which formerly operated a form of bureaucratic. centralised state-run capitalism. Once this dictatorial state capitalism had forced peasants off the land and into the factories as wage labourers earlier in the century, it proved to be a grossly inefficient basis for the further accumulation of capital.
Partly because of its in-built mechanisms for diverting capital to stagnant areas of production that should have been purged from the system, and partly because of the resistance of the working class to productivity speed-ups and other methods for increasing the rate at which surplus value was produced, the state-capitalist economies eventually stagnated. Indeed, they suffered not so much from a crisis of overproduction as a slowly-developing crisis of generalised stagnation and relative under-accumulation. Average rates of profit and the capital available for further investment fell dramatically. Countries such as Russia are now going through a painful process to restore an acceptable rate of accumulation through the destruction and devaluation of inefficient plant and machinery, with large-scale unemployment and massive real wage reductions for the working class.
The lesson from this is clear: whichever way capitalism is operated, economic crises and slumps will inevitably occur, not because of the foul-ups of politicians but because of the internal dynamic of the system itself. That is a sobering thought indeed for Yeltsin. Bush, Major and all the would-be “managers” of capitalism across the globe, as East and West, world capitalism stagnates in a deepening slump.