France probable UPtUrA initiate a pump-priming plan.
The crisis comes from afar The INSEE (National Institute of Economic Studies and Statistics) recently published a series of studies that throw new light on the evolution of the profitability of the economy and its major sectors as well as on the substantial changes that have occurred in the productive cipparatus during the past ten years or so. (1) These studies explain the diagnosis we mentioned above. What is involved is a typical crisis of overaccumulation of capital" such as has not been seen since the second world war. The rate of profit is falling under the effects of several factors(2): a very strong rise in the organic composition of capital; a substantial increase in indebtedness of companies and a consequent buildup in financial charges; a division between profits and wages that has favored the workers for some time, that is, a forced slowdown in the rate of exploitation. This decline in the rate of profit entails a partial hibernation and an Increasingly important destruction of capital (unused production capacity, many bankruptcies), as well as growing unemployment, and an attempt to devalorize the work force. We will examine these factors. 1. The rise in the organic composition of capital The entry of France into the Common Market in 1959 required that capital make sweeping changes, changes that only a Bonaparte (de Gaulle) was able to impose on a formidable working class. Concurrently with the lengthening of the workweek (which reached its peak, 47.2 hours, in 1963), there was a strong increase in the organic composition of capital. This rise can be seen in the increase of "gross productive fixed capital per capita." This figure grew at an annual rate of 3.4% between 1950 and 1957; the growth rate then rose to 5.3% a year from 1957 to 1964, only to explode to 7% a year from 1964 to 1973. (3) From 1964 Fo 1973 "gross productive fixed capital per capita" grew twice as fast as it hod between 1950 and 1957! This accelerated rise in the organic composition of capital has its origin in the capitalists' desire to bolster their competitiveness in the international arena and thus to reduce costs. But increases in the organic composition of capital very quickly become less and less effective. The "productivity of capital" - that is, the proportion between total production and the "capital" engaged in the productive process — very rapidly begins to decline. It increased 0.7% annually between 1957 and 1964, but declined 1% a year between 1964 and 1973. (See figure 1.) Granted, the increase or decrease is uneven according to sector, as we shall see. But it does reflect the in* Overaccumulation may be defined as a state in which there is a significant mass of excess capital in the economy that cannot be invested at the average rate of profit normally expected by owners of capital. 38 creased difficulties met by capital in its search for profits. In fact, although the increase in productivity per hour worked occelerates concurrently with the rise in the organic composition of capital (this productivity rose from an annual increase of 4.7% between 1961 and 1967 to 5.7% between 1967 and 1971), the total effect of this increase becomes less and less positive when added to the total effect of the decline in the "productivity of capital." In fact, average annual increase in the "total productivity of labor and capital" fell from 3.5% between 1957 and 1964 to 3% between 1964 and 1973. The accelerated rise of the organic composition of capital thus begins to have effects opposite to those hoped for by the capitalists. Its effectiveness declines, which induces the author of one of the INSEE studies to say: "Everything seems to be happening such that on the average, a supplementary investment effort in comparison with that of the preceding years produces no beneficial margin of effectiveness. •" (Sautter, p. 10.) Effectiveness and rate of profit must not be confused. But the fall of the former indicates growing problems for the latter, Because overaccumulation takes shape, grows sharper, and threatens the rate of profit. We will see this more precisely further on. 2. And its effects on the rate of profit The year 1964 was a turning point for the "productivity of capital. " But it was only beginning with 1969 that the rate of gross remuneration of capital started to decline. (See figure 2.) From 1964 to 1969 the negative effects of the fall of the productivity of capital - interrupted from 1968 to 1969(4) - on the rate of remuneration of capital were counteracted by two factors. Up to 1968-68, the capitalists managed to grab a larger share of the pie for themselves, thus accentuating social inequalities and raising the rate of exploitation; at the same time, they managed to play on prices in such o way that the prices of the commodities they produced rose faster than the prices of investment goods. (See figure 2.) The fall of the rate of remuneration of capital beginning in 1969 thus results from the negative action of the accelerated rise of the organic composition of capital ofter 1964 and from the exhaustion of the positive action of the two factors mentioned above On the one side, it became increasingly difficult for capital to grab a growing share in the division of income between profits and wages. This division was increasingly effected to the detriment of the capitalists(5), a result of May T968 and the continued combativity of the working class. The rise in the rate of exploitation was thus slowed down by the resistance of the workers and therefore no longer exercised sufficient force to counteract the negative effect of the rise in the organic composition of capital. On the other side, the rise in relative prices of valueadded in comparison with investment goods was no longer sufficient. The positive action of these two factors was exhausted. Hence, the gross rate of remuneration of capital declined, beginning in 1969. This decline her-
alded growing difficulties for capital, difficulties that are now asserting themselves as an overt crisis. Moreover, it must be stressed that efforts to modernize led the capitalists to increased borrowing. (6) The rate of self-financing fell. Debts grew. According to Entreprise (No. 1009), the proportion of long- and mediumterm debt to capital proper rose from 0.34 in 1963 to 0.61 in 1972. This increase in debt is accomponied by an increase in the charges for debts. Financial charges per unit produced increase, thus limiting the possibilities of self-financing and making the conditions of reproduction of capital more difficult for small companies, and even for big companies in some sectors. (7) It is thus understandable that the state would set itself the objective of alleviating the charges that weigh on the rate of profit of companies, mainly by diminishing the charges represented by taxes and by increasing subsidies. (See figure 4.) The various fiscal measures taken by successive governments - among them the eliminotion of forfeiture payments on wages in 1968 - have reduced fiscal charges per unit produced in nearly all sectors. It is also understandable that the state would try to redress the situation prevailing in the realm of the profits-wages division, "setting an example" by refusing to increase the wages of government employees (as in the postol strike in 1974, the Renault strike, etc.). We will retur to this point later. 3. By way of a synthesis Various indicators may be cited to give an idea of the overaccumulation that was first latent and then present in the development of the crisis, The INSEE calculates what if calls the real surplus of nonagricultural enterprises. (See figure 3.) (8) This index exhibits a declining trend. The real surplus is appropriated in four ways (figure 4). First, it serves to pay for the increase in the wage fund due to the wage increases over one year and to thie variation in employment; second it finances taxes (minus subsidies); third, it pays for various charges; finally, the remainder constitutes the net income of capital (interest, dividends, and gross savings of companies). It may be observed, as we have already noted, that the cost of the work force grows, that net taxes on subsidies decline (except in 1972), and that the net income of capital falls beginning in 1969-70. Several rates of profitability may be deduced from these indications. It is sufficient to place the net income of capital - before or after taxes - in the numerator and net productive fixed capital in the denominator, It will then be seen that the real rate of profitability before taxes (at 1959 prices) decreases after the year 1964, while the same rate after taxes decreases only after 1969-70. The divergent evolution of these two rates of profit from 1964 to 1969-70 demonstrates the effectiveness of the goverment policy of fiscal reductions; but it also demonstrates the limits of that effectiveness. Above all, it indicates the road the state will take, c road that has now been confirmed by the fiscal reducfions called for in the 1975 pump-priming plan. Inasmuch as state intervention is increasing ly selective, it is interesting to make a quick sectoral analysis of the evolution of nominal profitability and of the efficiency of each sector. The nominal rate of profitability takes account of the evolution of prices, both of investment goods (in the denominator) and of commodities produced (in the numerator). From 1959 to 1969 five sectors have nominal rates of profitability and efficiency ratings levolution of the productivity of capital and labor) that are higher than average. These five sectors are: automobiles, machine construction, chemicals, electrical construction, and clothing. (9) These five sectors are the ones that had the strongest growth rates, the greatest increases in their exports, the slowest increases in their prices, and created the most jobs, despite the rise of the organic composition. These five sectors constitute the motive-force sectors of the economy. Today, the crisis is hitting all sectors, but this very crisis should in tuin strengthen the relative weight of these five sectors, on the one hand because of the very process of the crisis (only the strongest can resist, or can at least recover more easily and feed on the crisis and on the other hand because of the intervention of the state. That is the point we will examine next. State policy The crisis of overaceumulation of capital, larval for several years and overt recently, requires growing intervention, both quantitative and qualitative, by the state apparatus in the economic domain. The crisis reflects the necessity for capital - and therefore for the state - to fundamentally reorganize the conditions of production and the relations of exploitation. But in a period of crisis, this growing state intervention depends more particularly on the political capocities commanded by the state. The state - "ideal collective capitalist" (Engels) and therefore guarantor of the reproduction of the relations of production - has to favor this or that sector of the expense of this or that other sec -tor. (10) Hence the "pruning" measures taken by the state, and hence the many bankruptcies that accompany these measures. This function of valorizing some capital at the expense of other capital narrows the social base on which the state rests; at the same fime it affects the workers movement in such a way as to strengthen the combativity and determination of this movement. The narrowing of the social base and the exacerbation of the class struggle thus explain why the state attempts to endow itself with a powerful repressive apparatus, both legal and illegal. These same factors also explain the state's economic difficulties in fully implementing its choices; further, they underlie the maneuverist character of state policy.
39
FRANCE 1. Up to the pump-priming plan of september 1875 Before the pump-priming plan, the state's policy consisted of slowing down inflation (credit restrictions) in order not to damage the competitive position of French companies and of allowing unemployment to develop. The companies whose nominal profitability was weakest suffered most from this policy. For the first ten months of 1975 the number of bankruptcies and court-ordered liquidations increased 25% compared with the same period of 19741 This policy was aimed at strengthening the motive-force sectors. Its function was to reduce the wage fund paid by companies and to thus improve their already highly compromised conditions of profitability. On the one hand, the state fostered the spread of unemployment (many laws on unemployment were passed aimed at inducing firms to reorganize working conditions and lay off workers; many companies went bankrupt); on the other hand, through its own wage policy in the public and nationalized sector, the state urged companies not to give in to workers'demands. This policy of reducing the wage fund was accompanied by a policy of direct aid to the motive-force sectors of the economy and to other sectors such as energy and steel. This selective policy, aimed at redressing the rate of profit in certain sectors and at partially destroying capital in other sectors, hod to quickly reach its limits, both economic and political. In a context of world recession, the downturn in demand consequent to the moderate progression of the wage fund and to the increase in savings(11) inevitably and rapidly increases unused productive capacity and swells stocks of unsold products, thus worsening the conditions of profitability in industries producing durable and nondurable consumer goods, conditions that are already heavily compromised. The failure of exports to go up (maintenance of the West German recession), combined with heavy financial charges (debts), and the considerable increases in unused productive capacity inevitably induced capitalists to cut down on their orders for investment goods, thus pushing the crisis forward and intensifying it. On the social and political side, the aggravation of the working and living conditions of the working class, the dizzying rise in unemployment, the maintenance of workers combativity, the penetration of the factories by revolutionary Marxists and the propagation of their slogans inevitably created real dangers for the goverment. These two factors - aggravation of the economic situation and threats on the social and political front - explain the belated but preventive turn made by the Giscard government. 2. The pump-priming plan and the upturn Since last summer, the French economy has entered a phase of stabilization. The crisis seems to have bottomed out. The bottom-out point was low, for the index of in40 dustrial production in August 1975 was 14.7% lower than it was in August 1974. Unused capacities varied between 20% and 40%, depending on the sector. The volume of productive investment fell 8-10% for the whole of 1975. Official unemployment passed the 1 million mark (the real figure was about 1.5 million), and partial unemployment multiplied; only the increase in prices slowed down compared with the rate of increase in previous months ( 0.7% in August, 0.8% in September, and 0.8% in October). The pump-priming plan is intended to reverse the priorities. The official objective is to end the crisis and slow down the advance of unemployment on the chance that price increases will accelerate. Unlike the German and American plans, the French plan does not give priority to priming consumption, but instead sets the objective of breathing life into the industries most heavily affected by the crisis: construction, public works, durable consumer goods. This is to be done through improving credit conditions. State orders and large-scale public works will thus amount to about 15,000 million francs. In addition to these state orders, there will be a fiscal rebate of 9,600 million francs. This fiscal rebate is in fact selective, for it affects only companies that had made a profit, which means the biggest companies, and is therefore of no use at all to the "ugly ducklings" hit hard by the crisis. The effects of the pump-priming plan cannot be immediate; in addition, they will inevitably be weak. The effects of aid to private consumers (5,000 million francs) and of lower-cost consumer credit will be attenuated by the increose in precautionary savings. This type of savings reflects the workers fears of future unemployment and explains the weak effectiveness of the pump-priming plan in a country like West Germany. The large-scale state projects will begin to have effects on the upturn of economic activity only toward February or March. The tax rebates for companies are not extensive enough to sufficiently improve company profits, especially since demand (both foreign and domestic) is increasing only slightly, except in some sectors (automobiles, household appliances). (12) It can thus be concluded that the expected increase in investment will inevitably be small and that the capitalists will prefer to utilize their unused capacity before making new productive investment. It can also be concluded that unemployment, far from being absorbed, will continue to increase, and then will stabilize of a high level for several months. On the other hand, the necessity for companies to reconstitute their profit margins will probably impel them to raise their prices further. This slight acceleration of inflation will eat into the competitive position of French companies just at the time when an upturn, even if only a weak one, will give rise to an increase in imports. On the whole, the pump-priming plan is grafted onto an economic situation that is insufficiently healthy for capital. That is why its effectiveness is likely to be small. The upturn is likely to be moderate and of short duration, because the rate of profit is falling, for rea-
sons we have outlined above. In this sense, both the pump-priming plan and the measures previously taken in the realm of wages and subsidies to companies (Citron, for example) are only indices of the government policy to come. The crisis hos been coming on for a long time now. Overcoming it will require not only the fiscal reductions already agreed upon and the subsidies now being handed out, but also a partial destruction of capital and a devalorization of labor. If is becoming increasingly vital for capital to find ways to sufficiently raise the rate of exploitation - and fast. It is for this reason that the present crisis, despite the uptum, is of such a character as to quickly pose serious social and political problems. November 30, 1975 FOOTNOTES: 1. The studies of the statistical institute are useful in many ways, even though the indices coined by the INSEE do not correspond to those used by Marxists. Indeed, it must not be forgotten that although the bourgeoisie needs indices and figures for fooling the working class (the price index, for example), it also needs to know some things about concrete reality, even if only in order to act upon that reality. 2. The rate of profit is the proportion of surplus-value to variable capital plus constant capital. It can be expressed in the mathematical formula:
5/v divided by 1 + c/v wherein s=surplus value; v=variable capital; c=constant capital; s/v represents the rate of exploitation and c/v the organic composition of capital. 3. See "L'Efficacité et la rentabilite de l'économie française de 1954 & 1974, by Ch. Sautter, Economique et Statistique, Series E, June 1975. 4. The "productivity of capital" grew significantly From 1968 to 1969. In fact, the wage increases that Followed the Grenelle accords were reflected in an increase in costs and acted unfavorably on the rate of profit; but they also led to a more intensive utilization of capital than would otherwise have been the case tillization of previously unused capacity) and this acted favorably on the "productivity of capital" and he rate of profit. 5. It would be an error to believe that a division of income more favorable to wages necessarily means a fall in the rate of exploitation. In reality, the wages of unproductive workers are counted in, but these worker are actually paid out of surplus-value. (On this point see the article by Robert Langston in INPRECOR fo. 27/28, June 5, 1975, and our book Un procès de ous-developpement, Maspero, second edition, Chapter 2.) It must also be added that the unfavorable evolution of the wages/profits division from the standpoint of the capitalists leads the capitalists to resist wage increases and to "trim down" their factories by maximally reducing the false costs represented by unproductive workers. 6. The various borrowing facilities (offering relatively low rates, considering the acceleration of price increases) constitute a means by which capital pays less dearly for investment goods and thus improves its rate of profit. On the other hand, for the workers who loan out their money (through their own bank deposits), the interest paid does not compensate for the increase in prices. In this regard, the advertising slogan of the banks could be: "Lend money to be robbed less." 7. Taking inflation into account, borrowing acts favorably on the rate of profit. In time, however, as a result of the growing increase in debt, it acts unfavorably on the net rate of profit. In the United States, for example, company debt compared with net adjusted profits increased twofold between 1969 and 1974 and mounted by a factor of 1.7 between 1972 and 1974. (See "The Falling Share of Profits, " Brookings Papers on Economic Activity, No. 1.) 8. The real surplus is determined in the following manner: Take gross value-added (in constant 1959 francs) and subtract the sum of the cost of renewal of capital plus the cost of renewal of labor. The cost of renewal of capital is equal to yearly amortization (in 1959 francs), and the cost of renewal of labor is the total number of employees in a given year multiplied by the average cost (in 1959 francs) of each person employed during the preceding year. 9. On the other hand, seven sectors had rates of profitability and efficiency inferior to the average. These were the following sectors: food, glass, nonferrous metals, textiles, construction materials, leather, and paper. 10. For more details on state intervention during periods of crisis, we enthusiastically recommend the collection of articles in L'Etat contemporain et le marxisme, published by the journal Critique d'Economie Politique, Maspero, 1975. 11. The government wage policy has hardly been successful os far as the capitalists are concerned, The capitalists have conceded substantial wage increases, which is a reflection of the combativity of the working class. This is whot explains the fact that the wage fund has increased slightly. 12. The index of automobile production rose 4.9% between June and July-August. The uptur in this sector should continue, but on the basis of a low producfion level. On the other hand, there was no upturn in October for the machine-fool industry, and the same is true for chemicals. Since October, there seems to have been a slight technical upturn in the steel industry.
41
10 * (index; 100-1959)
FRANCE
Figure 1
106 productivity of capital
104
102
100
98 - relative prices of valueadded and of capital
96
60
61
1959
63
Source: INSEE, Series E, No. 27, Fresque historique du surplus productif, p. 69
*in %
Figure 2
28
---
27
26
25
24 share of gross remuneration of fixed capital in value-added
23
14
13
12 gross rate of remuneration of capital
11
10
1959
64 65
66
Source: INSEE, Series E No. 27, Fresque historique..., p. 68 in % of real surplus taxes (minus subsidies)
60
50
Figure 3 in % of value-added net income at 1959 prices of capital
Evolution of Real Surplus
50
(non agricultural enter-
30 prises)
40
20increase in labor costs
30-
10 miscellaneous
1954
59
74
69
Figure 4
Source: Sautter, op. cit.
-
1954
64
59
74
Allocation of Real Surplus
Source: Sautter, op. cit.
42
(nonagricultural enterprises)
THE ITALIAN