Late Capitalism and Permanent Mass Unemployment

Ernest Mandel, in his tour de force Late Capitalism, published in the 1970s, periodized the development of capitalism in three stages: (1) market capitalism (1700 to 1850), marked by growth of industrial capital in domestic markets; (2) monopoly capitalism (1950-1960s), marked by imperialism, the development of international markets and the exploitation of colonial territories; and (3) late capitalism (1960s-onward), dominated by transnational corporations, mass consumption, globalized markets and labor pools, and transnational flows of capital (as well as people), a process often called globalization. This blogs carries forward Mandel’s analysis to understand the contemporary situation.

Earnest Mandel, economist and activist

Some talk of “de-industrialization” and claim that the late capitalist stage is the “post-industrial” stage, but as Mandel points out, it’s not that industry has disappeared, just that it has moved to different parts of the world, and automation, mechanization, and scientific management are replacing and displacing human labor. This trends continues. Manufacturing jobs have been disappearing in the United States as output in this sector has been holding steady since at least 1947. According to the Bureau of Labor Statistics, less than 10 percent of the workforce is now employed by manufacturing.

Where do displaced workers go? Not into agriculture. When industrial production emerged in the United States in the second half of the 19th century, some 70-80 percent of the population worked in agriculture. Last year, that figure was 2-3 percent. In real terms, of the some 150 million employed workers in the United States in 2008, fewer than one million were agricultural workers. Capitalists have almost completely industrialized farming. And where they needs hands, capitalists seek them among selected immigrant groups. There are to jobs in this sector for native workers to return to.

The sectors that have been absorbing surplus workers over the past several decades have been service and government sectors. The service sector is not monolithic in terms of income opportunity. The financial sector employment has grown the fastest because of the vast expansion of the money side of capitalism (the cause of increasing instability in the global economy and the direct cause of the recent financial crisis). But this line of work is rather exclusive.

The largest sector is labor-intensive services, comprised of low wage food, retail, and similar work. However, the rational principles that drove disemployment in the agricultural and manufacturing sectors are now being applied to the service sector. These trends explain why, combined with diminishing progressivity in the tax code and declining union density, despite manufacturing output remaining stable long term, inequality and poverty have risen in the United States relatively independent of recession.

Manufacturing jobs, with their current average of 18 dollars an hour, are the foundation of what the corporate media likes to refer to as the “middle class” (really, the working class). Agricultural jobs average around seven dollars an hour, much less than half of the manufacturing average. For service sector work along the lines of food preparation and services, personal care and service occupations, administrative support and retail occupations, and grounds keeping and maintenance wages range from nine to eleven dollars an hour in 2008 (unionizing this sector would dramatically raise wages and benefits). Wages in management in the financial and business service sectors are obviously higher than the wages for all these jobs, which, in part, explains growing inequality, as income distribution is shifting upwards into nonproductive sectors that control labor power.

Corporations rationalize production to reduce the quantum of value produced by the worker going towards wages so that the capitalist and managerial classes can capture a greater proportion of the value (exploitation). What propels the development of capitalism through its stages is, in major part, the contradiction between maximizing surplus value production in the short term and realizing that surplus in the form of profits, and the battle between capital and labor over the surplus value.

This is the twin process of capitalist accumulation and class struggle: In order to maximize surplus value, capitalists must rationalize production, i.e., make workers work harder for the same or less money or make them more productive by implementing machines and scientific management strategies (i.e. increase rates of exploitation). When workers organize to raises their income, capitalists deploy even more labor saving strategies, in addition to busting unions and moving factories overseas. The latter method is called relative surplus value production, and this is the dominant method for accumulating capital beginning in the industrial era. The problem with this method is that, when you make workers more productive, you need fewer of them. At least it’s a problem for workers.

This dynamic is the source of a phenomenon unique to capitalism: the industrial reserve army of labor. The industrial reserve is always present, but its ranks swell during periodic crises of capitalism, or the business cycles. Aggregate productivity can rise while aggregate wages fall. On top of this, rationalization strategies are applied sector to sector with shifts in labor costs. Given that services now dominate, that’s where the bulk of labor costs are now, and this is why the customer is doing more and more of the labor, which, obviously, the customer is not being paid to do. The result is labor displacement in the service sector and more growth in the industrial reserve. Manufacture is closing in on near-full automation. Next in line is effectively automating the service sector.

Rationalization of production is what lies behind the falling rate of profit in capitalist economies; as more workers are eliminated from paid production, aggregate demand decreases, which leaves commodities sitting on store shelves, unrealized as profit. This is a realization crisis, which in turn leads to a crisis of overproduction / underconsumption. Robots and machines don’t buy products. They don’t produce any value.

As the rational behavior of firms to make profits causes systemic instability and human suffering, the government moves to bail out the capitalists with tax payer dollars or by printing more money. This problem has been compounded in the United States by the globalization of manufacture, a process in which capital-intensive high-wage work is shipped overseas to take advantage of countries without labor and environmental standards and repressive political regimes that prevent unionization.

But the more fundamental problem is that of capitalism eliminating jobs through rationalization. The effects of the rationalization process have been devastating not only in the United States, but around the world. The total number of persons unemployed world wide at the start of 2009 was estimated to be between 210 and 239 million. It is much higher now with the continuing deteriorating global economic situation. The International Labor Organization predicts that, during 2009, the number of unemployed persons globally will rise between 29 million and 59 million. This increase comes on top of hundreds of millions already disemployed by rationalization. For example, the number of unemployed persons in the Asia Pacific region alone will likely reach 112 million people. In East Asia, between 40 and 49 million persons will be jobless. In South Asia between 33 and 37 million unemployed. And this is where much of the US industrial base went.

Widespread unemployment isn’t the only problem caused by late capitalism. Vulnerable employment, that is unstable and low-wage jobs, will likely rise 52 million in 2009, which would bring the total to more than 1.1 billion persons with vulnerable employment (a number I gave in class yesterday). In South Asia the number of vulnerable workers will rise to almost 79 per cent of all workers or 493 million people. In South East Asia and the Pacific, the share of workers in vulnerable employment could rise to around 64 per cent, or 182 million people, and in East Asia to 57 per cent, or 458 million people. These are massive numbers and they underscore the problem with an economic system that strives to find ways to eliminate and marginalize workers. The number of people working in Asia Pacific but living in households that survive on less than $1.25 per person per day could rise to 589 million.

The consequences of unemployment and vulnerable employment is widespread poverty. While the Third World is getting our manufacturing jobs (and then capitalists are rationalizing those third world workers into the surplus population), the US Labor Department projects that from 2008 to 2018, service-providing industries will add 14.6 million jobs, or 96 percent of the increase in total employment. Goods-producing employment as a whole is expected to show virtually no growth. And the US will see declines in manufacturing of some 1.2 million more workers. This means that even more workers who used to work at good-paying manufacturing jobs will be shifted into low-wage services.

Approximately one-third of the work force wasn’t working or was working only part time when this crisis started. And the current 10 percent unemployment rate masks a lot of suffering. When we disaggregate that number, we find that unemployment for minorities is much higher than 10 percent, especially for blacks, who have long been relegated to the reserve army, idled in impoverished communities.

I used Asia and the United States to give the reader a comparative point. Africa and South and Central America are also experiencing extraordinarily high rates of unemployment. Europe is experiencing some unemployment, as well, but because of the extensive social safety net most Europeans enjoy, the effects on their well being are not nearly as severe as for the United States and the Third World.

Strategies used in European societies are good for workers because they redistribute income through taxation providing for higher incomes and therefore more stable patterns of aggregate demand. Germany, for example, wasn’t much harmed by the recent global economic meltdown because of the high standards of living enjoyed by its citizens. This is the benefit of democratic government.

One of the ways the managers of the US economy have kept alive the illusion that the nation continues to have affluent middle strata is by promoting debt financing. Fifty years ago, citizens had considerable savings. They were encouraged to save so there would be money for banks to lend for investment. At times, citizens were even required to save. Now citizens—as consumers—are urged to use debt financing as a way to spend beyond their means, which are dwindling with anemic and or declining real income.

The United States now has the lowest savings rate of the advanced capitalist economies. In fact, we save now at the lowest rate since the Great Depression. There has been a dramatic acceleration in this debt since globalization moved into high gear. As late as 1984, the private savings rate was more than 10 percent of national income. Americans are compensating for the loss of real wages by using credit cards to by the things they don’t need. Most families live and die in the red. It’s unsustainable, as the current crisis is trying to tell us.

Decades ago, Mandel wondered what would happen if all necessary labor were eliminated from production. 

Imagine for a moment a society in which living human labor has completely disappeared, that is to say, a society in which all production has been 100 per cent automated. Of course, so long as we remain in the current intermediate stage, in which some labor is already completely automated, that is to say, a stage in which plants employing no workers exist alongside others in which human labor is still utilized, there is no special theoretical problem, since it is merely a question of the transfer of surplus value from one enterprise to another. It is an illustration of the law of equalization of the profit rate. Bu let us imagine that this development has been pushed to its extreme and human labor has been completely eliminated from all forms of production and services. Can value continue to exist under these conditions? Can there be a society where nobody has an income but commodities continue to have a value and to be sold? Obviously such a situation would be absurd. A huge mass of products would be produced without this production creating any income, since no human being would be involved in this production. But someone would want to “sell” these products for which there were no longer any buyers! It is obvious that the distribution of products in such a society would no longer be effected in the form of a sale of commodities and as a matter of fact selling would become all the more absurd because of the abundance produced by general automation. Expressed another way, a society in which human labor would be totally eliminated from production, in the most general sense of the term, with services included, would be a society in which exchange value had also been eliminated. This proves the validity of the theory, for at the moment human labor disappears from production, value, too, disappears with it.

Ludwig Von Mises once remarked, “It is not capitalism which is responsible for the evils of permanent mass unemployment, but the policy which paralyzes its working.” But it is both capitalism and policy that are responsible for permanent mass unemployment. Unemployment is an intrinsic and indeed essential feature of the capitalist mode of production. Policy, to the extent that it serves the narrow interests of powerful corporations, exacerbates the problem of permanent mass employment. Capitalism is, indeed, in its late phase of development. It’s a terminal phase.

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Andrew Austin

Andrew Austin is on the faculty of Democracy and Justice Studies and Sociology at the University of Wisconsin—Green Bay. He has published numerous articles, essays, and reviews in books, encyclopedia, journals, and newspapers.

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