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David Yaffe

The Crisis of Profitability:


a Critique of the Glyn-Sutcliffe Thesis

In a chapter on ‘Politics’ in British Capitalism, Workers and the Profit Squeeze 1,


Andrew Glyn and Bob Sutcliffe express the hope that their book will make a
contribution to the political struggle for socialism.2 Towards this end they have
gathered together and analysed a great deal of statistical information in an
original and important study. Before we begin what will be a critical review of
the book, we should say that the Left can only be very grateful to the authors for
making what must be the first serious empirical contribution towards an analysis
of the present crisis of British capitalism. Their claim is that the capitalist crisis
in Britain is converting the fight for the rights, wages and conditions of the
workers into a simultaneous fight for a revolutionary political strategy inside the
labour movement. With the recent check on the tide of working-class mili-
tancy, as witnessed by the collapse of the fight against Phase II, and with the
British economy now experiencing one of the fastest growth rates since the war,
the present time is a suitable one to examine critically the central arguments
of the book.
45
Scientific socialism differs from other ‘socialisms’ in that for Marxists
the historical ‘necessity’ of the new society (socialism) is shown in the
contradictory development of the old society (capitalism). This is what
we mean by the materialist basis of the revolutionary standpoint. We
can put our argument in another way. If the capitalist mode of produc-
tion can ensure, with or without government intervention, continued
growth and full employment, then the most objective argument in
support of the revolutionary socialist position breaks down. The
reformist perspective then becomes a reasonable one.
The revival and remarkable growth of capitalist production since the
Second World War has given impetus and apparent support to those
who reject the Marxist perspective. The prospect of a capitalist system
developing and functioning without serious interruption seemed to such
reformists a real possibility. Social and economic stability was to be
maintained by state intervention in the economy and with suitable
government policies the last pockets of poverty and despair could
be slowly reformed away. However, the last few years have given this
perspective a severe blow. The intensification of international com-
petition, the international monetary crisis, chronic rates of inflation
approaching the levels of the Korean War and the trend towards in-
creasing unemployment with the crisis of profitability, indicate that the
post-war boom is rapidly coming to an end.
The question remains, do the recent inflationary-led booms in most
capitalist countries alter this view? Was the crisis of the last few years
merely the preparation for a new expansion of production? Or did it
signify, once again, the extremely crisis-ridden nature of capitalist pro-
duction, that is, of capitalism as a decaying system and one that has long
outlived its historical ‘mission’. What perspective does a Marxist
analysis of ‘late’ capitalism hold for the revolutionary movement in the
next period? These are critical questions.
It is against such a background that we must judge this book. Does it in
any way adequately combat the reformist perspective? Will it bring
home to the trade union leaders the ‘contradictions between the
workers’ demands and the ability of the system to meet them’?3 What
perspective does it offer for a revolutionary strategy in the coming
period?
Unfortunately, where the book offers a consistent position, its central
thesis is quite compatible with reformism. It does nothing to combat
the ideological offensive of the ruling-class on the issue of inflation. On
the contrary, it gives credence to the view that high wages are a
primary cause of inflation. That the authors support the union drive for
higher wage demands4 in no way mitigates this failing. Radical reform-
ism is reformism nonetheless. Wage constraint is only the other side of
the radical coin. From the left side we have Glyn and Sutcliffe’s
position: ‘but when the wage struggle does threaten the survival of the
1
Penguin Books 1972, 40p.
2
Ibid., p. 215.
3
Ibid., p. 214.
4
Ibid., p. 201.

46
capitalist system . . . it is time for workers not to moderate their wage
demands but to destroy the system which exploits them.’5 From the
other side of the debate, we have the right-wing social democratic
response. In the words of Wilfred Beckerman: ‘as the inflationary
threat is greater (than ever) so never before has the need for restraint
been so vital.’6 Both positions share common ground but diverge in
evaluating the capitalist system. Neither position, in any coherent
sense, is able adequately to invalidate the other; it is a matter of
attitude.
Glyn and Sutcliffe underestimate the strength of reformism. Their
exhortation that workers ‘must see through the argument that they
should reduce their wage claims in the national interest’ 7 is too simple.
The leadership of the TUC believes that the ‘national interest’ can be
satisfied through a ‘high growth, high incomes’ government strategy.
That is why they are once more engaging in talks with the Conservative
government. They have never challenged outright the simple equation;
large wage increases necessitate price increases. All that the TUC leaders
want, is a ‘fairer’ policy, which they, and most trade unionists, believe to
be possible with changed government policies, or for that matter, a
changed government.
It is precisely against such points of view, and Beckerman is only an
extreme example, that a Marxist analysis of inflation would be directed.
It should show that the working-class is in no way responsible for
inflation. It should indicate how price rises far from being due to
workers’ attempts to increase their wages, are the result of the inter-
vention of the capitalist state in its attempt to maintain and preserve a
system that has long outlived its stay. The remainder of this article will
attempt to show that the theoretical inadequacy of Glyn and Sutcliffe’s
position stems from their failure to understand Marxist political
economy. Further, we shall illustrate how the ‘facts’ of the present
period fully vindicate the Marxist view. Finally, we shall briefly
indicate a revolutionary strategy for the working-class that flows from
such an analysis.
The Crisis of Profitability and the falling Rate of Profit
The crisis developed, according to Glyn and Sutcliffe, because the
mounting demands from the working-class for a faster growth in living
standards coincided with the growing competition between capitalist
countries.8 Wage increases could not so easily be passed on as price
increases if British firms were to remain competitive. While we fully
accept the significance and effect of the growing competition between
capitalist countries it is the first part of the explanation that we challenge.
Indeed, a great deal of material in their own book contradicts their own
point of view. The key factor that plays no theoretical central role in
their position, and which they often mention in their discussion of

5
Ibid.
6
Wilfred Beckerman ‘Inflation and the Class Struggle’ in the New Statesman, 8 Decem-
ber 1972, p. 858.
7
Glyn and Sutcliffe, op. cit., p. 201.
8
Ibid., p. 10.

47
statistical data, is the growth of the productivity of labour. That pro-
ductivity has been doubling every 10 years in Japan, every 15 years or
so in the major EEC countries and about every 30 years or so in the US
and UK is a fact of enormous importance. Yet they cannot locate this in
their analysis. 9
Confused about the basic relationships, they state in one place: ‘Profit-
ability is connected with the expansion of output through its effect on
the rate of accumulation of capital (investment), which in turn is im-
portant in determining the rate at which productivity increases.’10 In
another place, they state that stagnation had relatively little to do with
the decline of profitability.11 Their consistently argued position would
run something like this. The decline of profitability, given the intensifi-
cation of international competition, is primarily due to increasing wage
demands. This in turn slows down investment and therefore the growth
of productivity which only makes the problem worse. While for Marx,
‘the rate of accumulation is the independent not the dependent variable;
the rate of wages the dependent, not the independent, variable’12 the
position for Glyn and Sutcliffe is reversed. The decline of profitability
and the falling rate of profit is due to increasing wage demands. The
impulse behind such wage demands is the expectations of the working-
class, moulded in the period of economic expansion, being thwarted by
the slow growth in living standards in the late sixties. And adding fuel
to this fire is the realization of increased bargaining strength which has
contributed to the growth of working-class militancy.13 Political
economy is replaced by social psychology, Marxism by a version of
Ricardianism.

While we can not ignore the factors which Glyn and Sutcliffe stress,
they are in no sense primary in determining the crisis of profitability.
Marx makes the point admirably clear. ‘The rise and fall in the rate of
profit in so far as it is determined by the rise and fall of wages resulting
from the conditions of demand and supply (in the labour market) . . .
has as little to do with the general law of the rise or fall in the profit rate
as the rise or fall in the market prices of commodities has to do with the
determination of value in general.’14 That Glyn and Sutcliffe’s position
is quite consistent with their interpretation of Marxist political economy
can be seen in Appendix B, ‘Marx’s view of exploitation and capitalist
crisis’. It is summed up by their statement: ‘The dramatically falling
rate of profit in Britain does not seem to have been caused to any
significant extent by the increasing organic composition of capital but
rather by an increase in labour’s share of the product (very roughly the
equivalent of a decrease in the rate of exploitation). Logically this
possibility is allowed for in Marx’s analysis.’15 Unfortunately this is not
the case. It is worth quoting in full a passage where Marx spells out the
9
Ibid., p. 98.
10
Ibid.
11
Ibid., p. 65.
12
Karl Marx, Capital, Vol. I., Lawrence and Wishart, 1961, p. 620.
13
Glyn and Sutcliffe, op. cit., p. 180 and pp. 209-10.
14
Karl Marx, Theories of Surplus Value, Volume 111, Lawrence and Wishart, 1972,
p. 312.
15
Glyn and Sutcliffe, op. cit., p. 231.

48
general law. ‘This mode of production produces a progressive relative
decrease of the variable capital as compared to the constant capital, and
consequently a continuously rising organic composition of the total
capital. The immediate result of this is that the rate of surplus-value, at
the same or even a rising, degree of labour exploitation, is represented
by a continually falling rate of profit . . . The progressive tendency of
the general rate of profit to fall is, therefore, just an expression peculiar to
the capitalist mode of production of the progressive development of the
social productivity of labour. This does not mean to say that the rate of
profit may not fall temporarily for other reasons. But proceeding from
the nature of the capitalist mode of production, it is thereby proved a
logical necessity that in its development the general average rate of
surplus-value must express itself in a falling general rate of profit.’16 It
is just this indispensable basis of the Marxist theory of capital accumula-
tion that Glyn and Sutcliffe have rejected.17 In doing this they return to
a Ricardian framework so fashionable at the present time. For them the
most fundamental question is how the income generated by production
is shared between capitalists and workers. Marx also had something to
say about this. ‘The habit of representing surplus-value and value of
labour power as fractions of the value created—a habit that originates
in the capitalist mode of production itself . . . conceals the very trans-
action that characterizes capital, namely the exchange of variable
capital for living labour power and the consequent exclusion of the
labourer from the product.’18 It also conceals the central dynamic of
capitalist production. It is not the antagonism for the share of the net
product that underlies the contradictions of capitalist production, as the
radical Ricardians would have it. It is the constant requirement to
increase the exploitation of labour as investment takes place in order
that sufficient profits can be produced to compensate for the tendency
of the rate of profit to fall. ‘The progress of the process of production
and accumulation must, therefore, be accompanied by a growth of the
mass available and appropriate surplus labour and consequently by a
growth of the absolute mass of profit appropriated by the social
capital . . . The same laws, then, produce for the social capital an in-
crease in the absolute mass of profit and a falling rate of profit.19 It is
such a process that explains the growing international competition.
Competition does not harm everyone’s profits (shades of Adam Smith!)
but it is only the large, firmly placed capitals which can compensate for
a fall in the rate of profit by a rise in the mass of profits.20 It is the
16 Karl Marx, Capital, Vol. III, Lawrence and Wishart, 1962, pp. 208–9. For a detailed
discussion of this question see my article ‘The Marxian Theory of Crisis, Capital and
the State’ in the Bulletin of the Conference of Socialist Economists (CSE), Winter 1972, pp.
5–58, especially pp. 15–32. The article is reprinted in Economy and Society, Vol. 2, no. 2,
May 1973, pp. 186–232.
17 Andrew Glyn has, in fact, written an article which attempts to show on the basis of

a ‘corn’ model that the organic composition need not necessarily rise with increases
of the productivity of labour. See CSE Bulletin, op. cit., pp. 93–104. For a criticism of
this model see an article by Robin Murray in the CSE Bulletin, Spring 1973, pp. 53–5.
18 Capital, Vol. I, op. cit., p. 533. While Glyn and Sutcliffe do not deduce ‘a false

semblance of association’ from their method, nevertheless in seeing in the division of


income between capital and labour the most fundamental question they obscure the
central issue, op. cit., p. 54 and p. 57.
19 Capital, Vol. III, op. cit., p. 214 (translation taken from C. H. Kerr, ed., Chicago,

1909, p. 256).
20 Ibid., p. 251.

49
world-wide search for additional profits to compensate for the falling
rate of profit that explains the growing intensity of international
competition between large corporations, and the fight to divide and
invest in the markets of the capitalist world. This is the effect of capital
accumulation on a world scale. It is an effect that Glyn and Sutcliffe
never manage to explain.21
The key factor, as far as profitability is concerned, is a rising produc-
tivity of labour, and hence a rising rate of exploitation. Both profits and
wages can rise absolutely if productivity increases given the expansion
of investment. After all, the ‘novelty’ of so-called ‘scientific’ manage-
ment was to be that it makes ‘high wages and low labour costs . . . not
only compatible, but . . . in the majority of cases, mutually conditional.’22
This was why, in the 1960s, firms were prepared to offer large incen-
tives in order to introduce productivity deals.
The view that there has been a decrease in the rate of exploitation over
the 1960s period, is based on an equally incorrect theoretical analysis.
The rate of exploitation has to be understood as a ratio of the surplus-
value produced overall by productive workers to the wage of such
workers. With the large increase of the public, financial and com-
mercial sectors, a smaller and smaller proportion of workers may be
regarded as productive in Marx’s sense.23 It is just this point that is
ignored by Glyn and Sutcliffe in interpreting their statistical data. This
is all the more inexcusable when we take into account the fact that in
Britain, for example, half of the labour force work in public services,
the nationalized industries, or ancillary jobs in the public sector.
Taxation would have to be counted as part of the surplus-value pro-
duced by productive workers and only the net real wages after tax of
productive workers could be regarded as variable capital. Such a calcula-
tion would give us some indication of the enormous increase of the
rate of exploitation since the Second World War.24
State Expenditure, Inflation and the Crisis of Profitability
It is the growth of state expenditure that must be seen as one of the key
factors in an explanation of inflation. Glyn and Sutcliffe do give some
significance to the growth of government spending. They make the
point: ‘As it became more difficult to maintain a high level of private
investment, government spending has almost everywhere become more
necessary to maintain high levels of demand and employment; but this
21 It surely must be regarded as a piece of outright impudence that Beckerman,
clearly no expert in Marxist political economy, is able to get away with pointing out
to the authors the ABC of Marxism on the question of competition and the rate of
profit. It underlies the weaknesses that exist throughout the book. See New Statesman,
5 January 1973, p. 16. Glyn’s reply to Beckerman (New Statesman, 12 January 1973,
p. 51) shows he has still not understood this point.
22 F. W. Taylor, Sbop Management, 1903, pp. 21–2. Cited in Alfred Sohn-Retel ‘The

Dual Economics of Transition’ in the CSE Bulletin 2,2 Autumn 1972, p. 43.
23
See my article, op. cit., for a brief discussion on productive and unproductive
labour. pp. 11–14. See also Ian Gough ‘Productive and Unproductive Labour in
Marx’, New Left Review 76, November–December 1972.
24
As I pointed out in my article I consider the practical difficulties involved in
making the separation of productive and unproductive labour well nigh impossible,
op. cit., p. 14.

50
does not solve the profitability problem.’25 Indeed, in discussing the
immediate period up to 1917 in Britain, they even attribute creeping
inflation to government spending.26 This proposition is in no way
developed. What they fail to show is how ‘all the methods of state
interference on behalf of capitalism contain their contradictions.’27 In
arguing that the state can only avert the pressure on profitability if it
can neutralize its causes—wage increases and international competition
—they confuse ‘cause’ with ‘effect’.28 It is precisely the crisis of profit-
ability that makes a growing state expenditure necessary. The contra-
dictions of state intervention have to be located at the point of pro-
duction of surplus-value and not in the distribution of national income.
It is to such an explanation that we now turn.

State expenditure has played a significant role in maintaining social and


political stability since the Second World War. State intervention
proved necessary in the reorganization and expansion of capitalist pro-
duction after the war. This process could not be carried out by private
capital alone and nationalizations of basic industries and government
subsidies to private producers, state expenditures on military and space
programmes, as well as on welfare, education and social security have
been a necessary feature of the post-war boom and the ensuing stability.
The nature and limits of this kind of expenditure, therefore, is a vital
question for Marxist theory.

The point about state expenditures is that they are financed and paid for
out of taxes or by budget deficit financing and government borrowings.
The latter contribute enormously to inflationary pressures as the money
supply has to be increased and credit advanced to finance these ex-
penditures. As interest on government debt has to be paid back, state
expenditures financed in this way presuppose ‘future’ taxes and hence
future profitability. In both cases, present or ‘future’ surplus-value is
appropriated from private capital by the state in the form of taxes or
loans to pay for these expenditures. This represents a decline in surplus-
value available for private capital accumulation. This is so because
state-induced production is ‘unproductive’ from the point of view of
capitalism as a whole. Although state expenditure ‘realizes’ surplus-
value, the products bought by the state do not function, in general, as
capital, and therefore do not produce additional surplus-value or profits
from the standpoint of society or total social capital. The finished pro-
ducts that the state buys are acquired with already produced surplus-
value. The individual private capitalist producing for the state quite
clearly gets the average rate of profit and ‘surplus-value’ is produced by
his exploited workers. But from the standpoint of society, of total
social capital, ‘unproductive’ state-expenditure constitutes a drain on
capital. So the profit acquired by the individual capitalist producing for
the state comes to him only out of a redistribution of the already pro-
duced surplus-value. The mass of profits produced is spread over a
larger base and, therefore, the rate of exploitation must be increased
25
Glyn and Sutcliffe, op. cit., p. 73 and pp. 100–101.
26
Ibid., p. 22.
27
Ibid., p. 49.
28
Ibid., p. 176 ff.

51
faster than before such expenditure, in order to maintain the overall rate of
profit.
We have as a consequence, the following mechanism. Private capitalist
investment is insufficient to maintain full employment and social
stability. The government must supplement production for the market
with its ‘non-productive’ expenditure in order to take up the slack and
reduce unemployment. But this is a capitalist expense indicating a latent
tendency towards crisis, for government expenditure requires, indeed
necessitates, deficit financing and increased borrowing which leads to
inflation. This is because it is, in general, ‘non-roductive’ expenditure
and so increases the purchasing power in the economy without a
simultaneous increase in profitable production. It has the same effect as
that of too much money chasing too few goods. The price of com-
modities will rise and this includes that of labour power itself, which is,
after all, a commodity. The inevitable increase of taxation in this period
means that there will have to be a further rise in money wages in order
that real wages can be at least maintained. In order that state expendi-
ture can be financed out of surplus-value produced in the private
sector of the economy, the rate of exploitation must be increased faster
than before to prevent an actual fall in the rate of profit and a faster rate
of inflation. The inflationary pressures are a necessary, albeit contradic-
tory, part of the attempt to solve the crisis of profitability and stave off
the tendency of the rate of profit to fall.
It is clear, therefore, that there are limitations to ‘unproductive’ ex-
penditure and other government-induced demands in a capitalist
economy. If production grows faster in the ‘non-productive’ sector of
the economy than in the ‘private’ sector, the production of profit, or
surplus-value, relative to total production, declines more rapidly than
before. More surplus-value must be produced from a smaller base of
productive workers in order that the tendency of the rate of profit to
fall is checked. As long as the productivity of labour can be sufficiently
increased so as to maintain the rate of profit and finance the non-
productive sector, government-induced expenditure will indeed be the
‘cause’ of high employment and social stability. But this process is self-
defeating: to cope with the expense of the non-productive sector
the exploitability of labour must be steadily raised. This means a higher
organic composition of capital and a decline in the exploitable labour-
force relative to the growing capital. To maintain a state of high em-
ployment indefinitely, the non-productive sector must increase faster
than total production. But this implies a slow deterioration of private
capital expansion which can only be halted by halting the expansion of
the non-productive sector.
The increasing concentration and centralization of capital is, therefore,
essential for increasing the social productivity of labour. Government
induced production helps in this respect because the sheer size of the
‘state’s orders’ leads to a restructuring of capital in private industry.
The enormous extension of credit facilities is necessary to finance the
very large investment now needed to bring about the necessary and
competitive increases in the productivity of labour. This extension of
credit is based on expected future profitability. This has led to recurring
52
liquidity problems now affecting large corporations, and in Britain,
nationalized industries. (In the case of UCS this was a shortage of work-
ing-capital that had little relation to future profitability.) Nevertheless,
this investment must continue on an ever-increasing scale if the mass of
surplus-value to finance both the private and state sectors of the econ-
omy is to be forthcoming. If it is not, or if state-induced expenditure
grows too rapidly and the necessary restructuring of capital is not
achieved, then we can expect the latent crisis conditions to take the
form of an actual crisis.
The increasing inflation in all capitalist countries is an indication of how
far the problems have developed. In Britain this has resulted in an
increasing role of the state in giving the lead to private industry in the
process of rationalizations. The large expenditure programme on the
nationalized industries involves the loss of thousands of jobs and there
are State subsidies to private enterprise to encourage it to follow suit.
The direct attempt by capitalist States to control labour relations
through incomes policies, industrial relations acts, and other methods,
are the political counter-part of the process. A ‘disciplined’ labour-
force and co-operative trade unions are considered essential if the
rationalizations and increase in profitability necessary for the survival
of capitalism are to be carried through. The continuing attempt to
integrate the trades unions into the state apparatus represents a central
part of this strategy.
In such a context we can understand British entry into the EEC. It is far
from astonishing that ‘British capitalists (are) clamouring for entry into
the market.’29 It is essential for British capital to have full access to the
markets of Europe if the restructuring of capital and rationalization
programmes necessary for British capitalism to survive are to be carried
through. Competition will not go away. There is no choice for British
capitalism but to become part of Europe in a world of growing im-
perialist struggle. Only Europe can hope to compete with Japan and
the United States in the new division of the markets of the world. It is
the large efficient capitals alone that can survive. The EEC represents a
further attempt of capitalism to break down the barriers that capitalism
itself has created. The contradiction between social production and
private appropriation finds its expression in the total inability of any
European nation state to provide a framework for the expansion and
accumulation of capital. The British ruling-class had no choice but to
integrate and share the fate of European capitalism.
The Crisis of British Capitalism and the Crisis of Profitability
In this section we intend to indicate briefly how, for Britain, the facts
give support to our analysis. Since its decline as a major imperialist
power, the British economy has lagged behind the development of the
other major industrial powers. It has therefore been at the forefront of
the crisis of profitability. The entry into the EEC and the present
Conservative offensive against the working-class, as we have said above,
represent a last ditch effort of the ruling-class to stave off the present

29
Ibid., p. 172.

53
decline. One of the key factors in the relative decline of British capital-
ism can be seen in the small amount of gross domestic fixed capital
formation (capital investment) as a percentage of the gross national
product in comparison with other countries between 1960 and 1972.

130
TABLE
Investment as a percentage of GNP
range from 1960 to 1972
Japan 30–35%
Germany 23–27%
France 20–26%
Britain 16–18%
US (excludes government expenditure
on machinery and equipment) 17–18%
The investment in plant and machinery in Britain was only about two-
fifths of total investment, that is, about 7 per cent of GNP. Investment
in the private sector as a share of total investment fell from 58·5 per cent
in 1962 to 53·4 per cent in 1969, with the public sector increasing its
share.31 As most public investment is ‘unproductive’ this would only
increase inflationary pressures.

If we look at British investment overseas, we see a completely different


picture. The outward movement of British capital was massive. Be-
tween 1962 and 1969 there was an increase of £3,425 million in direct
investment abroad, £2,500 million in portfolio investment and £12,575
million in financial claims, the latter indicating the enormous role of
the City in international financial affairs. Although foreign investment
in the UK was also substantial, British interests invested abroad were
nearly 70 per cent more than foreign interests invested here. This
explains the great pressure on the British balance of payments.32 The
‘stop-go’ policies of succeeding British governments in their attempts
to solve the balance of payments problems only contributed to the
relative decline of British capitalism and led to a very small rate of
growth throughout the whole period. Table 2 gives the comparisons.

TABLE 233
Rates of Growth 1955–1968. Annual Percentage Rates
GDP
Japan 9·7
France (1959–68) 5·5
Germany 5·0
USA 3·9
Britain 2·8
30 These figures are approximate and are taken from the Economist, 31 March 1973,

Survey on Japan, p. 15.


31 Taken from Politics and Money, Vol. 2, no. 2, April–May 1971, p. 11.
32 Ibid., pp. 7–8.
33 OECD, The Growth of Output 1960–1980, 1970, p. 220. Cited in Andrew Gamble and

Paul Walton ‘Late Capitalism in Crisis’, Issac Deutscher Memorial Lecture, Manu-
script p. 21.

54
With this relative decline of British capitalism in the face of increasing
international competition, it was necessary to increase government
expenditure continually during the whole period in order to maintain
full employment. This was accompanied by an increase in taxation and
the rate of inflation.

So far we do not differ substantially from Glyn and Sutcliffe in seeing


the main structural causes of the decline of British capitalism. It is from
this point onwards that the differences in analysis become clear. Thus,
Glyn and Sutcliffe say: ‘Leaving aside the post-war devaluation year of
1968, the faster fall (of the share of profit) between 1964 and 1970 can be
almost entirely explained by the combination of changes in wages and
world export prices and the continuation of the tendency for the wages
increases to have a greater and greater effect as international competition
intensified. Stagnation had little to do with it.’34 Stagnation had every-
thing to do with it. It necessitated an increase in state expenditure, an
increase in taxation and a decline in the share of net real wages and
salaries (after tax) in national income due to the rising inflation. The
following statistics indicate this.

TABLE 335
Percentage of GDP ( factorcost)
1957 1960 1965 1968 1970
Total government expenditure 36·5 37·5 45·5 51·9 50·7
Taxation (total) 32·6 32·2 35·3 41·2 45·0
Social Services (education—
health—social security) 14·0 15·4 17·7 20·4 21·1

After 1968 government expenditure was more than half the gross
domestic product and by far the largest part of that expenditure was on
social services (around 42 per cent). Taxation had increased from
32·6 per cent in 1957 to 45 per cent in 1970. Net take home pay (after
tax, insurance, etc) as a proportion of national income, has actually
fallen.

TABLE 436
Net take home pay (wages and salaries) after tax, etc,
as percentage of national income
1957 60·0
1960 58·8
1965 57·4
1968 55·9
1970 56·4
1971 55·9

The figures for the growth of gross money, gross real and net real
income (after tax) for men manual workers, are equally instructive.

34
Glyn and Sutcliffe, op. cit., p. 65.
35
Taken from National Income and Expenditure, CSO Office, 1957–72.
36
Cited in Politics and Money, Vol. 4, no. 1, January–March 1973, p. 30. National
income is defined as gross national product less capital consumption.

55
TABLE 537
Annual compound rates of growth
Gross Money Gross Real Net Real
Income Income Income
1956–60 5·0 2·9 2·1
1960–64 5·5 2·2 1·3
1964–68 6·6 2·5 0·5
1968–70 10·0 3·6 1·3

This indicates how important it is to say exactly what is meant by an


increase in wages or the share of wages in the national income.38

If we now look at the increase of productivity per man over the period
we can see that net wages after tax grew at a slower rate than produc-
tivity in Britain.

TABLE 639
Output per male equivalent man-hour
1955–60 2·7
1960–64 3·2
1962–67 3·7
1968–69 2·6
1969–70 4·2
1970–71 5·4
1967–71 3·9

Since 1962 the average has been about 3·8 per cent per annum. On the
other hand, the average real net income increase per year for male
manual workers in the same period was about 1·3 per cent and for all
employees about 2 per cent. During this period the increase in inflation
rates can be seen in Table 7.

TABLE 740
Average Annual per cent increases in consumer prices
1956–62 2·0
1962–69 3·7
1969–71 7·9

37
Taken from Dudley Jackson, H.A. Turner, and Frank Wilkinson, Do The Trade
Unions Cause Inflation? Cambridge University Press, 1972, p. 66.
38
The figures for all employees show a higher real net income growth (1964–8,
1·2 per cent; 1968–70, 3·4 per cent). This is an increase of nearly one third as much
again over the period as increase for male manual workers. The difference is due
to the price index used. The one for male manual workers reflecting the cost of wage
earners consumption which includes a greater proportion of food and housing
expenditure, ibid., p. 67.
39 F. W. Paish ‘The Prospects for Increasing Output’ in Lloyds Bank Review, January

1973, no. 107, p. 1.


40 Jackson, Turner and Wilkinson, op. cit., p. 122

56
Unemployment between 1954 and 1964 was reasonably low ranging
from 1 to 2 per cent but since 1966 it has never been below half a
million and by 1972 had risen to over one million (nearly 4 per cent of
the labour force).41
What these figures show is that from the mid-1950s there has been ris-
ing government expenditure,42 increasing taxation, a rising produc-
tivity of labour, rising inflation, rising unemployment and a redistribu-
tion of national income away from wage and salary earners (this in
terms of net take home pay). In spite of this, the crisis of profitability
has continued. Figures given by Glyn and Sutcliffe for the pre-tax rate
of profit show a decrease from 16·5 per cent in 1950–4 to 9·7 per cent in
1970 and the post-tax rate of profit fell from 7·1 per cent to 4·1 per cent
between 1964 and 1970.43 Although these figures should not be con-
fused with the rate of profit as defined by Marx, they do give an indica-
tion of the general tendency. Far from higher wages being the cause of
the present crisis of profitability, it is an insufficient increase in the
productivity of labour to finance profitably the private and growing
state sector. Further, our figures suggest that an increase in the organic
composition has taken place and a rise in the rate of exploitation. The
former is indicated by the growing need to increase state expenditure to
take up some of the increase in unemployment resulting from pro-
ductivity increases. In spite of this unemployment has grown. The rise
in the rate of exploitation is indicated by the productivity increases, the
increase in the state and ‘non-productive’ sector, and the fall in net take
home pay as a percentage of national income. The crisis of profit-
ability44, far from being caused by large wage increases, results from the
contradictions of capitalist production itself which has its expression in
the tendency of the rate of profit to fall. This tendency is indicated
today by the rising state expenditure, the growing trend of unemploy-
ment and the increase in the rate of inflation.
When the Conservatives came to power they promised to ‘reduce prices
at a stroke’. Their strategy was to cut government expenditure and
reduce overall taxation. Their aim was to bring about a shake-out of
labour from British industry in a process of ‘forced’ rationalizations at
the expense of the working-class. They soon learnt to their cost that
the contradictions of capitalist production cannot be removed at a
stroke. The Conservative government which set out to cut public
spending is now paying out £1·67 extra for every £1 it cut back on in
41 Glyn and Sutcliffe, op. cit., p. 178.
42 It should be remarked that although a great deal of government expenditure is on
social services, this still has to be regarded as coming out of gross profits. It is the real
net wage of productive workers that constitutes variable capital. The rest is a cost
that private capital must pay for social stability, etc. As such goods are paid for out of
surplus value already produced (taxation, etc.) their production does not add to total
social capital and hence to surplus-value from the standpoint of society. They are a
capitalist expense even if unemployed workers and others benefit from such ex-
penditure.
43
Glyn and Sutcliffe, op. cit., p. 66.
44
The authors acknowledge in the postscript of the book that in the recent period
‘part of the gain in profitability came from the large increases in productivity
(6 per cent in 1971) which was a result of the continued surge of redundancies’, op.
cit, p. 217. The recent rise in the rate of profit (in the sense used by the authors) is
clearly due to large productivity increases.

57
October 1970. It is also paying out £1·30 in aid to industry for every
£1 that Labour spent in its last year of office. Direct assistance to the
shipbuilding industry alone on the past year was more than Labour
spent in its last year helping all industry through the now defunct
Industrial Reorganization Corporation.45 All this was forced on the
present government because a rising unemployment, together with
inflation, threatened social stability.

The Conservative reduction in taxation made it the more necessary to


increase government borrowing to finance the increase in government
expenditure required. The total government borrowing needed in the
year to April 1973 was £1,810 million, slightly lower than expected and
in the year to April 1974 it is assessed at the huge sum of £4,423
million.46 Such borrowing requirements lead to very high interest
rates which only make matters worse by putting up the cost of private
and local authority investment, house purchase, etc, and so adding to
the pressure on prices. Part of this borrowing will not be met by
increased saving and will therefore require an increase in the money
supply and advances of bank credit, so contributing further to in-
flationary pressures. At the present time the rise in the money supply is
still of the order of 30 per cent per year. Finally, the inflationary based
expansions elsewhere in other capitalist countries has increased the
demand for, and hence the prices of, basic commodities and raw
materials. This has meant for Britain, a country that imports a large
proportion of its requirements, another contribution to inflationary
pressures.

The government’s strategy after the change in policy forced on it by


the working-class response to its initial policies (UCS, the miners
struggle), has been to turn to an incomes policy. Both the wage freeze
and Phase II are an attempt of British capitalism to restore profitability
at the expense of the working-class. The aim is to create a climate that
will encourage private capitalists to invest and bring about a restructur-
ing of British capital which will allow it to hold its own in the EEC.

The recent period has only confirmed the tendencies we have indicated.
The freeze and incomes policy have brought a further redistribution of
income away from wage and salary earners. Real wages have actually
been falling for a considerable time as a result of rising prices, especially
for food and housing (including rents). The government is also con-
tributing to a restoration of profitability in another way, that is by its
expenditure programmes for the nationalized industries.

Throughout the period the state has attempted directly to give a lead to
private industry in the process of rationalization while at the same time
supplying the basic inputs to private industry at a ‘reasonable’ cost.
The massive reduction of the work force in the nationalized industries
in spite of the large expenditures involved is the indication of this. The
new expenditure programmes for the steel and coal industries only
continue the general trend. The result of the enormous expenditure
45
Economist, 7 April 1973, p. 11.
46
Politics and Money, Vol. 4, no. 1, op. cit., p. 10. and the Economist, 12. May 1973, p. 65.

58
programme for the steel industry (£3,000 million) will be a loss of
about 50,000 jobs and similar reductions are considered necessary in the
coal industry. This is an attempt to make the working-class pay for
problems inherent in capitalist production. The freeze on prices in the
nationalized industries has left nearly all of them with large deficits.
The government actually subsidizes them to the tune of over £500
million a year at the present time.47 This, together with the increase in
borrowing necessary to finance these industries’ new investment, only
contributes to the inflationary surge. It is not surprising that, already,
at the first sign of an expansion of the economy, cuts in government
expenditure are planned.
There is, indeed, no better indication of the contradictions of capitalist
production than the fact that with one of the fastest yearly growth
rates of the British economy since the war and a 9 per cent increase in
productivity in manufacturing industry, unemployment is still ex-
tremely high (over 600,000) and the real wages of the working class are
actually falling.48 With the balance of payment problems looming ahead
this inflationary-led mini-boom only reinforces the latent crisis con-
ditions. The imperative is to increase the rate of exploitation. Whether
this can succeed depends on the response of the working-class.
Strategy for the Working-class

Unfortunately, what the recent period clearly indicates is that ‘mili-


tancy’ is not enough if the response to the offensive against the work-
ing-class is to be turned in the direction of a struggle about the system
of production itself.49 Economism, and the trade union struggle share
the same ideological foundation as that held by the ruling-class. It is
precisely this that has to be combatted politically. And, it is therefore
not surprising that the faulty analysis in British Capitalism, Workers and
the Profits Squeeze offers us little more than increased militancy as a way
forward for the working-class.
We have shown that the working-class is in no way responsible for
47
Economist, 5 May 1973, p. 73–4.
48 Economist, 5 May 1973, p. 73, and 12 May 1973, p. 65. Already for December 1972
The Times reported a slight fall in average pay for manual workers (22 February
1973). While the retail price index has increased by 3·4% from October 1972 to
March 1973 (and by 4·7% to April 1973), basic hourly earnings over the same period
have increased by 1·3%. Average earnings from October 1972 to February 1973
increase by 2·1%. (See Labour Research Bulletin, vol. 62, no. 6, June 1973, p. 143.)
The Economist (26 May 1973, p. 67) confirms this view. Retail prices increased by
4·7% in the six months after the freeze whereas average earnings to March were up
by only 3% since the freeze. This is to be compared with the real rise in take home
pay in the previous year due to the overall reduction of taxation in 1972. Many
workers, however, did not benefit from this rise as they were caught in the freeze
at the time their wage increase was due. In a recent contribution A. Glyn suggests
that the rise in living standards for 1972 was nearly 7% although he holds the view
that a fall in workers’ living standards of the order of 1% or 2% is likely in 1973
(CSE Bulletin, Spring 1973, p. 52). It is too early to assess the significance of these
changes although the general trend of increasing labour productivity, well above
the rise of real wages, is clear.
49 It should be noted that as far as militancy goes the British working-class, if strike

statistics are anything to go by, was not exceptional. See Anthony Barnett ‘Heath,
the Unions and the State’ in New Left Review 77, p. 24ff.

59
inflation. On the contrary, inflation together with increased taxation50
has re-distributed net take-home pay as a percentage of national income
away from the working-class. A demand that has real relevance in this
situation and needs to be raised generally is that for ‘a rising-scale of
wages regulated by housewife and trade union committees’. Such a
demand calls for automatic cost-of-living increases on the basis of a
working-class index drawn up by housewives and trade unionists. It
not only ensures that the working-class is not made to pay for inflation,
but it also begins to raise the issue of ‘control’ in a concrete way. It says
that the working-class will decide, through its own representatives who
experience the problem directly, what is the rise in the working-class
cost-of-living. It would involve housewives directly in the struggle.
And it suggests that the function of such committees should be ex-
tended to continued surveillance over prices. This could lead to in-
vestigations as to how and why price rises occur. It would show how
the anarchy of capitalist production is the source of rising prices. From
this the way forward points to the need to establish a society where
the consumer is not faced with the continual struggle for existence that
such anarchy dictates.
The rising-scale of wages clearly does not preclude fighting for in-
creases in working-class living standards, e.g. claims for £10, etc, as at
Fords, but is additional to them in the sense that it is a means for pre-
venting the erosion of such gains by inflation. The demand should not
be confused with threshold agreements which allow certain increases
only after a certain rise in the cost of living (e.g. 5 per cent), and then are
based on the government’s own price index. The working-class must
not be deceived by such agreements which still put the main burden for
price rises on the working-class. So long as the battle remains on a
purely monetary level the working-class cannot win. No matter how
militant the fight, any wage increase will be rapidly eroded so long as
inflation occurs. Nevertheless to extract the demand for a rising-scale
of wages . . . from the capitalists will involve the fiercest struggle which
will necessitate the active involvement of wide layers of the class if it is
to be successful. For it is a concession that the capitalist class will give
only as a last resort. For what is posed is the struggle for control, the
control of the working-class over the capitalists to the extent of pre-
venting them running the economy the way they choose. It poses
concretely the fact that the working-class are not prepared to take
responsibility for capitalism’s problems. They want a stable and im-
proving standard of living regardless.
We have shown how the cooperation of the trade-union leaders and
their integration in the state apparatus becomes a necessity for capital-
ism in the present crisis. The Industrial Relations Act and incomes
policies together with the ‘tripartite’ talks between the Government,
the TUC and the CBI are all parts of this process. They represent capital-
ism’s attempt to solve its problems at the expense of, and possibly with
the agreement of, the working-class. The State is no ‘neutral’ body but
represents, as the present crisis has so clearly shown, the interests of the
50Marginal tax rates for the working-class have also risen because tax-free allow-
ances have not grown as fast as inflation.

60
ruling-class. In the epoch of monopoly capitalism it is impossible for
the unions to remain politically neutral or ignore the decisive role of
the state. Therefore, the most important political demand that can be
raised in relation to trade unions at the present time is for ‘the complete
and unconditional independence of the trade unions from the capitalist
state’. It is only on the basis of a strategy that incorporates this demand
that the trade unions can be turned into instruments serving the
interests of the socialist revolution.
It is in the light of this perspective that the demand for democracy in
the unions requires a political significance. The trade union leaders do
not involve themselves in talks with the employers and the Govern-
ment to defend their privileges from the rank and file. Rather if their
reformist political relations with the capitalist class are to survive, then
the freedom of the rank and file must be curtailed. The very same shop
floor militants who often share the reformist illusions of the Trade
Union bureaucracy are driven by the material conditions of their lives
to man the flying pickets and occupy factories. Their activity, especially
with the development of factory occupations, raises practically, if not
consciously, the whole question of private property. To set strict limits
on this struggle is therefore a political necessity for a reformist trade
union leadership.

To raise the social productivity of labour is an imperative for British


capital if it is to survive in the EEC. The State has already begun the
process of rationalizations in the nationalized industries and other
investment programmes are planned or suggested which will mean
large reductions in the work force elsewhere. The shipbuilding industry
is the latest example.51 The demand for ‘work or full pay’ is the only one
that can seriously tackle rationalizations. It insists, once again, that
whatever the problems of the ruling class, the solutions will not be at
the expense of the working-class. The demand is, of course, not an
alternative to militant struggles on the shop floor, e.g. occupations.
Rather, it is an element which revolutionaries should seek to introduce
into that arena.

Work or full pay cannot be fulfilled by the individual employer. In as


much as the necessity for such a solution becomes rooted in the minds
of the working-class it raises the question as to what form the solution
should take. The demand is one which points to the capitalist class as a
whole, through its agency the state, as those capable of fulfilling the
demand, and thus directs the attention of the class to the true nature of
the enemy—as a class that wields state power. It is not difficult to argue
that any society worth a light would be able to provide such a minimum
need. And if their society cannot provide it a socialist state would.

We indicate by raising this demand that we are not against an efficient


organization of production as such, just as we are not against machines
as such—we are against the effects of rationalization under capitalism.
51See article by John Fryer in the Sunday Times, 20 May 1973, p. 60. The possible
redundancies run from a level of 23,000 jobs to 11,000 depending on the level of
support the industry receives.

61
The question is: who benefits from rationalizations? Why do increases
in the social productivity of labour lead to redundancies and not to an
overall reduction in the time necessary to work and so on? The
demand allows the alternative of planned production for needs to be
discussed and raised. It is only demands such as those discussed above
that can carry the class struggle forward in the direction of a political
struggle about the system of production itself.52

What we have tried to show in this review is how a Marxist analysis of


capitalism has vital implications for the class-struggle. If we have been
extremely critical of Glyn and Sutcliffe’s book, it is because of the
seriousness of the task they set themselves. Their book had the great
merit of making a discussion of the capitalist crisis an essential part of
the search for a socialist political strategy. The information they
gathered together in their book will be indispensable for future work.
If this review can contribute to a discussion of the central ideas they
have raised, they will hopefully appreciate its critical tone.

May 1973

52
I am very grateful to Tony Polan for allowing me to use many of the ideas we have
discussed together for this section on a strategy for the working-class. Some are
taken directly from an unpublished article written by him.

62