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D. Socialization of Costs as a Form of Cartelization
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D. Socialization of Costs as a Form of Cartelization.

The common thread in all these lines of analysis is that an ever-growing portion of the functions of the capitalist economy have been carried out through the state. According to James O'Connor, state expenditures under monopoly capitalism can be divided into "social capital" and "social expenses."

Social capital is expenditures required for profitable private accumulation; it is indirectly productive (in Marxist terms, social capital indirectly expands surplus value). There are two kinds of social capital: social investment and social consumption (in Marxist terms, social constant capital and social variable capital).... Social investment consist of projects and services that increase the productivity of a given amount of laborpower and, other factors being equal, increase the rate of profit.... Social consumption consists of projects and services that lower the reproduction costs of labor and, other factors being equal, increase the rate of profit. An example of this is social insurance, which expands the productive powers of the work force while simultaneously lowering labor costs. The second category, social expenses, consists of projects and services which are required to maintain social harmony--to fulfill the state's "legitimization" function.... The best example is the welfare system, which is designed chiefly to keep social peace among unemployed workers.78

According to O'Connor, such state expenditures counteract the falling general rate of profit that Marx predicted. Monopoly capital is able to externalize many of its operating expenses on the state; and since the state's expenditures indirectly increase the productivity of labor and capital at taxpayer expense, the apparent rate of profit is increased.

Unquestionably, monopoly sector growth depends on the continuous expansion of social investment and social consumption projects that in part or in whole indirectly increase productivity from the standpoint of monopoly capital. In short, monopoly capital socializes more and more costs of production.79

O'Connor listed several of the main ways in which monopoly capital externalizes its operating costs on the political system:

Capitalist production has become more interdependent--more dependent on science and technology, labor functions more specialized, and the division of labor more extensive. Consequently, the monopoly sector (and to a much lesser degree the competitive sector) requires increasing numbers of technical and administrative workers. It also requires increasing amounts of infrastructure (physical overhead capital)--transportation, communication, R&D, education, and other facilities. In short, the monopoly sector requires more and more social investment in relation to private capital.... The costs of social investment (or social constant capital) are not borne by monopoly capital but rather are socialized and fall on the state.80

As suggested already by our reference above to O'Connor, these forms of state expenditure have the practical effect of promoting several of the "counteracting influences" to the declining rate of profit that Marx described in Volume 3 of Capital. The second such influence Marx listed, for example, was the "depression of wages below the value of labor power." Through welfare, taxpayer-funded education, and other means of subsidizing the reproduction cost of labor-power, the state reduces the minimum sustainable cost of labor-power that must be paid by employers. This is true, likewise, of Marx's third influence: the "cheapening of the elements of constant capital." The state, by subsidizing many of the operating costs of large corporations, artificially shifts their balance sheet further into the black. The fourth influence listed, "relative overpopulation," is promoted by state subsidies to the adoption of capital-intensive forms of production and to the education of technically skilled manpower at government expense--with the effect of artificially increasing the supply of labor relative to demand, and thus reducing its bargaining power in the labor market.81

We should briefly recall here our examination above of how such socialization of expenditures serves to cartelize industry. By externalizing such costs on the state, through the general tax system, monopoly capital removes these expenditures as an issue of competition between individual firms. It is as if all the firms in an industry formed a cartel to administer these costs in common, and agreed not to include them in their price competition. The costs and benefits are applied uniformly to the entire industry, removing it as a competitive disadvantage for some firms.

Although it flies in the face of "progressive" myth, big business is by no means uniformly opposed to national health insurance and other forms of social insurance. Currently, giant corporations in the monopoly capital sector are the most likely to provide private insurance to their employees; and such insurance is one of the fastest-rising components of labor costs. Consequently, firms that are already providing this service at their own expense are the logical beneficiaries of a nationalized system. The effect of such a national health system would be to remove the cost of this benefit as a competitive disadvantage for the companies that provided it. Even if the state requires only large corporations in the monopoly sector to provide health insurance, it is an improvement of the current situation, from the monopoly capital point of view: health insurance ceases to be a component of price competition among the largest firms. A national health system provides a competitive advantage to a nation's firms at the expense of their foreign competitors, who have to fund their own employee health benefits--hence, American capital's hostility to the Canadian national health, and its repeated attempts to combat it through the WTO. The cartelizing effects of socializing the costs of social insurance, likewise, was one reason a significant segment of monopoly capital supported FDR's Social Security agenda.

Daniel Gross, although erroneously treating it as a departure from the alleged traditional big business hostility to the welfare state, has made the same point about more recent big business support of government health insurance.82 Large American corporations, by shouldering the burden of health insurance and other employee benefits borne by the state in Europe and Japan, is at a competitive disadvantage both against companies there and against smaller firms here.

Democratic presidential candidate Dick Gephart, or rather his spokesman Jim English, admitted to a corporate liberal motivation for state-funded health insurance in his 2003 Labor Day address. Gephart's proposed mandatory employer coverage, with a 60% tax credit for the cost, would (he said) eliminate competition from companies that don't currently provide health insurance as an employee benefit. It would also reduce competition from firms in countries with a single-payer system.83

Another "progressive" cause du jour, the reform of corporate governance, likewise serves elite interests. It's odd that so much of the populist outrage against corporations these days is focused, not on billionaire stockholders, but on their hired help. It's a misguided populism that buys into the misleading "pension fund socialism" or "people's capitalism" image of stock ownership. Although stock is indeed distributed more widely, a great majority of it is still owned by a fairly small fraction of the population. So all the agitation to rein in the misbehavior of senior management, supposedly on behalf of the average working Joe whose 401k is tanking, is a con job. The main effect of "corporate accountability" legislation is to protect the assets of David Rockefeller and his ilk against depreciation through white collar crime.

The level of technical training necessary to keep the existing corporate system running, the current level of capital intensiveness of production, and the current level of R&D efforts on which it depends, would none of them pay for themselves on a free market. The state's education system provides a technical labor force at public expense, and whenever possible overproduces technical specialists on the level needed to ensure that technical workers are willing to take work on the employers' terms. On this count, O'Connor quoted Veblen: the state answers capital's "need of a free supply of trained subordinates at reasonable wages..."84 Starting with the Morrill Act of 1862, which subsidized agricultural and mechanical colleges, the federal government has underwritten a major part of the reproduction costs of technical labor.85 In research and development, likewise, federal support goes back at least to the agricultural and experiment stations of the late nineteenth century, created pursuant to the Hatch Act of 1887.86

The state's cartelization and socialization of the cost of reproducing a technically sophisticated labor force, and its subsidies to R&D, make possible a far higher technical level of production than would support itself in a free market. The G.I. Bill was an integral part of the unprecedentedly high scale of state capitalism created during and after WWII.

Technical-administrative knowledge and skills, unlike other forms of capital over which private capitalists claim ownership, cannot be monopolized by any one or a few industrial-finance interests. The discoveries of science and technology spill over the boundaries of particular corporations and industries, especially in the epoch of mass communications, electronic information processing, and international labor mobility. Capital in the form of knowledge resides in the specialized skills and abilities of the working class itself. In the context of a free market for laborpower... no one corporation or industry or industrial-finance interest group can afford to train its own labor force or channel profits into the requisite amount of R&D. Patents afford some protection, but there is no guarantee that a particular corporation's key employees will not seek positions with other corporations or industries. The cost of losing trained laborpower is especially high in companies that employ technical workers whose skills are specific to particular industrial process--skills paid for by the company in question. Thus, on-the-job training (OJT) is little used not because it is technically inefficient... but because it does not pay.

Nor can any one corporation or industrial-finance interest afford to develop its own R&D or train the administrative personnel increasingly needed to plan, coordinate, and control the production and distribution process. In the last analysis, the state is required to coordinate R&D because of the high costs and uncertainty of getting utilizable results.87

At best, from the point of view of the employer, the state creates a "reserve army" of scientific and technical labor--as William Appleman Williams described it, the elite has "seen to it that experts are a glut on the market."88 At worst, when there is a shortage of such labor, the state at least absorbs the cost of producing it and removes it as a component of private industry's production costs. In either case, "the greater the socialization of the costs of variable capital, the lower will be the level of money wages, and... the higher the rate of profit in the monopoly sector."89 And since the monopoly capital sector is able to pass its taxes onto the consumer or to the competitive capital sector, the effect is that "the costs of training technical laborpower are met by taxes paid by competitive sector capital and labor."90

The "public" schools' curriculum can much more justly be described as servile than liberal education. Its objective is a human product which is capable of fulfilling the technical needs of corporate capital and the state, but at the same time docile and compliant, and incapable of any critical analysis of the system of power it serves. The public educationist movement and the creation of the first state school systems, remember, coincided with the rising factory system's need for a work force that was trained in obedience, punctuality, and regular habits. Technical competence and a "good attitude" toward authority, combined with twelve years of conditioning in not standing out or making waves, were the goal of the public educationists.

Even welfare expenses, although O'Connor classed them as a completely unproductive expenditure, are in fact another example of the state underwriting variable capital costs. Some socialists love to speculate that, if it were possible, capitalists would lower the prevailing rate of subsistence pay to that required to keep workers alive only when they were employed. But since that would entail starvation during periods of unemployment, the prevailing wage must cover contingencies of unemployment; otherwise, wages would be less than the minimum cost of reproducing labor. Under the welfare state, however, the state itself absorbs the cost of providing for such contingencies of unemployment, so that the uncertainty premium is removed as a component of wages in Adam Smith's "higgling of the market."

And leaving this aside, even as a pure "social expense," the welfare system acts primarily (in O'Connor's words) to "control the surplus population politically."91 The state's subsidies to the accumulation of constant capital and to the reproduction of scientific-technical labor provide an incentive for much more capital-intensive forms of production than would have come about in a free market, and thus contribute to the growth of a permanent underclass of surplus labor;92 the state steps in and undertakes the minimum cost necessary to prevent large-scale homelessness and starvation, which would destabilize the system, and to maintain close supervision of the underclass through the human services bureaucracy.93

The general effect of the state's intervention in the economy, then, is to remove ever increasing spheres of economic activity from the realm of competition in price or quality, and to organize them collectively through organized capital as a whole.

 

We have, in this chapter, made a partial study of the problem of over-accumulation, and of the intensification of state capitalism in response to that crisis. In the following chapter, we will examine another response to the same crisis, the policy of foreign imperialism to dispose of surplus production abroad. And in Chapter Eight, we will see that these state capitalist policies not only intensify the problem of over-accumulation, but at the same time create contrary crisis tendencies toward under-accumulation; so that state capitalism is constantly balanced on a razor's edge between crises of over- and under-accumulation.