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The life blood of capitalism

Let's keep it simple. Profits are the lifeblood of capitalism. If a capitalist investor or owner of a business cannot make a profit, he or she soon stops investing capital or employing workers to produce things or provide services. It's the law of the market, say the economists of capital. Marxists agree with the economists. Profits are the fuel of capitalist production - without them there would be no production. But the apologists of capital make two other propositions. First, they say there is no other system of human social organisation that works. So a profit-based system will continue forever. Second, a profit-based system of production and social organisation works for the benefit of all, maybe to differing degrees, but nevertheless for all.
It is here that Marxists disagree. Marxists reckon that there are other systems of social organisation that have worked (in a fashion) before capitalism where production for profit played no role. Moreover, in the future, human beings can develop social organisation that will work without profit-making being necessary. And the profit system of production and organisation, far from working for all, leads to huge inequalities between rich and poor, both within nations and between nations on the globe. Moreover, the capitalist profit system actually breeds periodic crises that generate massive unemployment, poverty and war.

So, if profits are the lifeblood of capitalism, their size and growth must be an excellent guide to the health of the capitalist system. The bigger the profit for the capitalists, the more likely is the capitalist system of investment and production to thrive, at least for a while.

If that's right, what does that tell us about the current state of the world capitalist economy? Well, we can get the best figures on profits from the data provided in the US, the world's largest economy.

And what do these figures show? We can most easily measure profits as a share of annual national output (GDP). This is not the correct or Marxist definition of profits in a capitalist economy. Marxists would define profits as the surplus value produced by an economy's labour force. That surplus value is the value of annual production sold in an economy minus the cost to the owners of all the businesses of paying its workers. Also, Marxists would measure profits against the cost of investing in machinery and raw materials as well as employing workers. The US government measure merely takes profits against sales, not costs.

Even so, the official government data can still show trends in the size and growth of profits. That's helpful to judge the health of US capitalism. And what do the figures reveal? They show that US corporate profits as share of GDP have moved up from lows in 2001 to reach near record levels in 2005. But if you look over the much longer term, US profits are still below the levels achieved in the 'golden years' of capitalism back in the 1960s.
Profits

The profits of US companies (excluding the banks and after paying tax) are about 8% of total sales this year. That's much higher than the low of around 4% achieved in November 2001, nearly equalling the low of the 1979-81 economic recession. The figure is now just below the peak of 1997 of 9% of sales. That peak was the highest level of profits reached since the 1960s, when it was common for US profits to be 10-12% of sales. That was truly the 'golden age' of US (and world) capitalism).

The steady decline of the ability of capitalists to extract profits from their workforces is revealed even more clearly when we look at the profit figures before tax. In the 1960s, US corporations achieved annual profits of 15-20% of sales annually. Then came the first post-war economic slump or crisis of 1969-72 quickly followed by the worldwide economic crisis of 1973-74, which signalled the end of the 'golden age'. In 1974, profits before tax fell to just 9% of sales, half the levels achieved in the golden age. Economic recovery up to 1978 took the profit rate back to 14% but then the 'double-dip recession of 1979-82 saw profits fall back to an even lower level of 8%.

Capitalists in the advanced capitalist economies then launched a major offensive against the working-class to remove all the gains achieved by the labour movement during the golden age. The 1980s saw the Thatcherite battles in the UK and Reaganite ones in the US. Trade unions were shackled and crushed. The welfare state was dismantled through spending cuts and privatisation of state industries.

Even so, the profit rate only crawled up to a peak 10% in 1989 before the next recession drove it back down to 8% again. Further attacks on the wages and conditions of the labour force followed with 'downsizing' (i.e. cutting back on the labour force and driving up unemployment). This helped to take profit shares back up. In the late 1990s, the hi-tech revolution also added to profitability. By 1997, before tax profits reached 13% - still way below the golden age, but a lot better than in the 1980s.

But the very 'mild' economic recession of 2001 was not mild for US capitalism. Profits slumped to 6% of sales before tax. The boom since then has taken them back to nearly 12%.

But again this new peak reached this year is still below the peak of the 1990s, just in line with that of the 1980s and still below that of 1970s. And of course it is way below the golden age levels of the 1960s.

What does this history of US profits since the 1950s tell you? It shows that the long-term health of capitalism is deteriorating. US capitalism, the rising economic power of the early 20th century, the strongest economic power of the post-war period, is now getting old. Whatever, US corporations do: cut the workforce, employ casual and temporary labour, use the latest hi-tech equipment, relocate to cheaper places around the globe, try to protect their profits with tariffs and trade restrictions, it seems that they cannot restore the great days of the 1960s.

And the secular decline in US corporate profitability is mirrored in the figures for profits in the UK, Europe, Japan and Australia. Modern capitalism is weakening.

Marx's great economic law of the tendency of the rate of profit to decline is visible in these figures. Sure, there are periods when the use of new technology and the ability to weaken the ability of the workforce globally to obtain decent wages and conditions allow capitalists to restore somewhat their profitability.

But that is achieved only after destructive periods of economic recession or slump when millions lose their jobs, small businesses collapse in their hundreds of thousands, or even worse capitalists engender wars to enable them to get labour or resources cheaper. The post-war period of secular decline in profitability has been accompanied by the powerful American state overthrowing progressive anti-capitalist governments in Latin America, conducting a horrifically damaging war in Vietnam, installing an agent provocateur state, Israel, in the midst of the oil-rich but 'unstable' Middle East, and of course now occupying a major oil state directly with US troops.

The huge cost, not just in lives and livelihoods for the masses, but also in productive resources and profits made by capitalism, was necessary - for capitalism. It was needed in order to try and reverse or slow the inevitable decline in the economic health of the system.

So 60 years after US capitalism became the dominant economic, political and military power on the globe, it has been unable to restore the profitability of its capitalist companies. With the next recession, profitability will plunge to even lower depths and will require even more destruction and struggle to rise again.

If profits are the lifeblood of capitalism, then the blood of the US and the top capitalist nations keeps seeping away. They desperately suck harder on the labour power of the working-class globally to get more blood. And for a while, they succeed. The latest upturn in profitability has now lasted four years. But eventually, profitability starts to fall back again.

The two great propositions of the apologists of capitalism: that it is the only system of human social organisation that works and that it brings with it prosperity for all, are thus exposed.

www.marxist.com
anti-capitalism rhetoric gets so tiring 07.Sep.2005 14:31

.

It doesn't matter what "system" we are operating under, as long as human nature doesn't change we'll have the same problems under any system.

Ever been involved with anarchists, communists, or any other -ists where a minority of the people were doing the work while others just waited around for things to get done? The burnout of such a system is inevitable.

The profit motive of capitalism is the means of motivating people to get things done, without some motive who would clean bathrooms and service septic tanks? Who would be the plumbers in a post-capitalism society, or are you proposing that there be no plumbing? I think it's humans' capacity for selfishness that needs addressing, not the system under which we're operating. Not that I don't agree that the personhood of corporations should be eliminated, corporate influence in government reduced, and so on.

... 07.Sep.2005 18:46

this thing here

the problem i have always had with profit is that it doesn't do anything. it's simply excess money. it just sits there and gets pointed at.

if money created by a business, the money remaining after all cost is considered, is used to build more factories, or hire more employees, or invest in new technologies, that money is not profit. it is capital.

so what the fuck is the point of profit? "excess" capital? that's an oxymoron.

one could run a perfectly successful business, and have it thrive and grow for decades, without ever making a cent of profit. just keep growing the capital. so profit, what's the hell is so important about a bunch of money doing nothing in a bank account? and why the hell would an economy build such a religious reverence around something so useless?...

as motivation? well shit, trying to keep the books in the black, "the bottom line", is the motivating principle. in that light, profit seems ridiculously extraeneous and beside the point.

doesn't profit end up 07.Sep.2005 21:03

being used as

capital?

Anyway, my point was that it doesn't matter under what system we operate. As long as people are selfish, wasteful and destructive, any -ism we are functioning with is going to lead to waste and destruction. So what are we going to do about people's attitudes about consumption, greed, and selfishness?

human nature eh? 08.Sep.2005 11:09

steven

saying that people are naturally selfish is simply not true, and does not take into account the majority ofhuman history. Modern humans lived as hunter-gatherers for tens of thousands of years, working cooperatively the entire time. There has not been any significant biological evolution in the last ten thousand years, however, there has been tremendous social evolution. As man's environment has changed, he has changed with it, though not biologically. Capitalism inspires man to be as greedy and individualistic as possible. In order for a worker to survive, he must compete with others to get a job. One man's gain becomes another mans loss. Changing our social system is the only way to dispel this false faith in the idea of "human nature". What is truly tiring is hearing the same old justifications for the existence of the profit system, eternally encouraged by the establishment, and somehow accepted as fact by even people of this website.

about profit 08.Sep.2005 11:13

steven

profit is not in fact useless, but allows a special class to live off the backs of another. The people who work are the ones who create the wealth, the profit created by the wealth is simply what the owners take for themselves so they may live a nice life without actually doing anything.This is where the term "wage slavery" comes into play. The workers recieve a 'wage' for their work, but the wage is always below the value they create, the additional value being recieved as profit by the slave master.

if interested, read Marx's Capital, where everything about capitalism is explained.

economy for dummies 08.Sep.2005 11:57

my last post

Under Communism in many places, there were a minority of people who organized the workers and had far more wealth... how is this different?

Again, any system will have those who take advantage of it, as long as humans' attitudes don't change.

communism, eh? 08.Sep.2005 18:22

maslauskas maslauskas@riseup.net

"Under Communism in many places, there were a minority of people who organized the workers and had far more wealth... how is this different?"

The communism you must be talking about is "communism" in name only: China, USSR, Viet Nam, Cuba, North Korea... these countries have (had - for USSR) a few things in common, namely that they referred to their respective nations as "communist" - nothing could be further from the truth. What these nations are essentialy are state capitalist countries - bureaucratic, authoritarian and yes, capitalist. Good point though, these so-called "communist" states are not much different from the US, or any capitalist country for that matter (but with varying degrees of repression). However, instances, both past and present, of true communism / socialism / anarchy (whatever you want to call it) have existed. It was George Orwell who said in his book "Homage to Catalonia": "...socialism either means a classless society or it means nothing at all..." or something to that extent. Hierarchy? Hell no! What does that have to do with true, libertarian communism?