|8/12/04||The Wages of Overproduction by S. Artesian|
1. The Rewards of Empire
At a cabinet-level meeting of the faith-based initiative called the Bush administration, boy George entered the executive office holding a stack of envelopes in one hand and the bible in the other. “Mail call,” called the first male, licking his lips as he tossed brown envelopes to all present. The officers of the state tore into their envelopes like school children tucking into ice cream. Inside each envelope were three checks issued by the US Treasury, payable to the officers of state as private citizens. Soon all joined the President in the smacking of lips so appropriate to this banquet of salesman, consultants, dissemblers, entrepreneurs, golf pros, dimwits, extortionists, and con men.
These checks were not another in the series of tax refunds that had done so much for so few. The President knew, because somebody had told him, that these checks were better than tax refunds, although he wasn’t sure that was possible. The first check was the peace dividend, secured in the collapse of the Soviet Union, realized in the destruction of Afghanistan, Iraq, Gaza, the West Bank and collateralized by the insolvency of private pension plans. The second check was a payment based on the complex formulas of the oil depletion allowance, where the price of oil is adjusted to deplete earnings from all the other endeavors of capital. The third check, by far the smallest sum, was the profit sharing distribution of US corporate capital to its bagmen. The Secretary of Commerce, chagrined, shrugged his shoulders as if to say, “What can I say?” What he did say was, “Wasn’t really that good a year.”
The President surveyed his ministers. He started to tell them not to spend it all in one place, but the Vice-president interrupted him. Cheney knew. What, where, and how much didn’t matter. It would all be spent in one place.
2. Your Check is in the Mail
In 1991, the military victory of the US in the Persian Gulf was overshadowed by the victory capital would achieve in conquering a bigger and better target. Moscow. Compared to the money to be made in demolishing the social base of the Soviet economy, the destruction of Baghdad was a distraction, and so the position was closed out, temporarily.
Moscow, the dream of the millions of dwarf Napoleons, mini-Pauluses, midget Pattons, was open to the future, the market, and most importantly, the futures market. Shortage, scarcity, hoarding of goods; dismantling, shuttering of the industrial plant; immiseration of the population in general and dispossession of the workers from the work place in particular raced through the economy, an army of disorganization and destruction unencumbered by the need for resupply, an army organized against resupply, replenishment, reproduction.
Capital was triumphant. More or less. The dawn’s early light was the glow of trash fires burning in Moscow, Manila, Mexico City. Letting freedom ring was the opening bell of the New York Stock Exchange. There was liberty with options and strike prices for all. Almost. Everything looked good when backlit by piles of depleted uranium.
US capital, emerging from the recession of 1990-1991, securing the home front advantage through the NAFTA accords, had two bulges in its pants pockets, one guns and the other money, and was happy to see both of them. Capital spending began a sustained long march where it increased its stride by an average 12 percent each year. In 1994, the manufacturing sector accounted for the single largest amount, some 28 percent of the total. Within manufacturing, expenditures on motor vehicles and vehicle parts, and communications equipment/computers were the largest components. The service sector had the second largest expenditure, and 20 percent of that was concentrated in auto and truck rental. The communications industry increased spending 7.6 percent. Spending on communication and transportation as a whole measured 25 percent of all capital spending.
Capital spending in 1996 was 30 percent above the 1994 level, with manufacturing expenditures close to 200 billion dollars. Communications spending had increased 40 percent from the 1994 level.
The pattern of capital spending increases was to continue. By 2000, US capital spending was twice the 1994 level. Capital spending in the now titled “information” sector increased 34 percent from 1999’s mark. Spending in wired telecommunications was up 31 percent. Spending for wireless communications increased 77 percent.
The expenditures on communication, information, and transportation, in a word- circulation, are expenditures on the realization of the value derived from the exchange of capital with wage-labor. The expenditures are part of the total costs of production. For the individual capitalist owning the fleet of trucks, the locomotives, or the fiber optic network, money is spent on these mechanisms to reduce his or her unit cost in circulation process. And by 2000 unit costs for freight transportation had declined 50 percent from the 1990 level.
For capital as a whole, improvements in the circulation process bring the commodity to market faster and more cheaply, presenting not only a saving in units cost, but an increased velocity of capital’s turnover, and the velocity of the turnover is critical to both the mass and rate of profit.
Between the appropriation of surplus value in production and the realization of that value as profit there are the boundaries of time. It is in fact in this gap between appropriation and realization that capital confronts its self-contradiction as social production and private property. The exchange between capital and wage-labor is only half-completed in the transformation of social labor into private property through the production of commodities. The commodities themselves, the private property itself, has to prove itself socially necessary in relation to all other commodities, and prove it fast. Capital organizes itself at every opportunity to compress the delay in the process of realization. Production drives circulation forward, demanding that its own speed be matched in the markets by the speed of the transformations of commodities from values to objects and from objects to expanded values. The time of circulation, the costs of circulation, are absorbed into the reproduction of capital as part of the total cost of production. The accelerated turnover of capital facilitated by improved circulation both appears as increased cash flow and disappears as part of the increased profits of capitalist production.
3. Your Separate Checks are in the Mail
The bourgeoisie see in the separation in time between production and circulation, expropriation and realization, as more than a delay, and more than an obstacle, but as the separation between production and value itself. Realization is mistaken for creation. Cost and only cost is attributed to production. Profit, and thus value itself is the result of the market. Capital expenditures appear to exist only to reduce unit costs, to increase productivity, output per hour. Yet, in making the improvements in the machinery of circulation part and whole of reducing the costs and increasing the velocity of the commodities brought to markets, these improvements become necessarily improvements and costs of the production itself. Then everything that occurs in the circulation of commodities, in the attempted realization of profit, in the reproduction of capital is the reflection of the primary exchange at the source of capitalist production, between wage-labor and capital, a reflection of the expropriation of surplus value.
Certainly, the expenditures made in the 1990s did increase output and productivity. Between 1992 and 2000 US manufacturing output increased 42 percent, and output per hour grew 50 percent. But more than that, or more than equal to that, the capital expenditures positively restrained wage demands of the workers. Real hourly compensation in manufacturing grew only 9 percent. In terms of purchasing power, while the increase in producer prices between 1992 and 2001 reduced the power of the dollar used by production owners by 12 percent, the increase in consumer prices reduced purchasing power for wages by 22 percent.
Productivity, then, measured the accelerating expropriation of surplus value, where the workers, as a class, reproduced the social equivalent of the value necessary to sustain a relatively declining standard of living in less and less time. That’s the hard mouthful to swallow about the great boom of the 1990s.
In specific sectors, productivity exceeded the 50 increase for all of manufacturing. Productivity increased 60 percent in basic steel production, 70 percent in petroleum refining, 100 percent in coal mining, 400 percent in telecommunications, and an astounding 1100 percent in electronic component and semiconductor fabrication.
With the accelerating extraction of surplus value, both the rate and mass of profits for US manufacturing increased with the rate of growth of profit exceeding the rate of growth of sales. Between 1991 and 1997, US manufacturing net sales increased 40 percent while net operating profit increased 65 percent. Between 1997 and 2001, net sales grew 10 percent. Net operating profit which had grown by 15 percent to year 2000, fell by almost half, to mark a negative growth rate of 40 percent for the 4 year period.
Profit rates are calculated differently by almost every econometric group who after all have to distinguish their statistical products from the other products on the market, but all the such groups agree that 1997 was the peak year for the profitability of US manufacturing. In a study released in 2002, The Bank of England calculated the peak rate of profit for US manufacturing occurring in 1997 and measuring 25.2 percent (see “International Comparisons of Company Profitability,” Economic Trends No. 587).
In 1997, investment in information processing equipment and software accounted for 32 percent of all new nonresidential fixed investment. In 1999 information processing accounted for 34 percent of the total, and in 2000 it reach 35 percent. The application of this technology to production and circulation, to inventory and material requirements, to asset utilization, meant that greater output could be achieved with reduced production costs, and just as importantly to the process of general capitalist accumulation, relatively stable production prices. Thus the boom era with its highly touted “efficiency of the markets” was nothing but the reflection of the tremendous technological inputs to production.
Capital imagines itself as the eternal, permanent, and ultimate creation of the market. In reality the market merely reflects the exchange between capital and wage-labor. Capital expands. The expanded capital, the expanded inanimate property, then becomes the zero sum all over again and must exchange ever more of itself with wage-labor. Thus the more capital accumulates, the more it exchanges with wage-labor, the more it reproduces wage-labor as a shrinking proportion of the process, the less capital exchanges of itself with wage-labor. The rate of profit declines and the very expansion of capital becomes the growing zero sum. Circulation then realizes the declining rate of profit in the shrinkage of demand, in the slowdown of reproduction, in the decline in the mass of profits. The falling rate of profit is product and producer of overproduction.
4. A Brief Digression: Speculation: Your Options, Derivatives, Futures Check is in the Mail, But the Mail is Delayed: after 1997, in Asia, after 2000 in the US.
A New Neue Rheinische Zeitung, May-October, 1850/1998-2003
“What appears to the superficial observer to be the cause of the crisis is not overproduction but excess speculation, but this is itself only a sympton of overproduction…..we shall enumerate only the most significant of these symptoms of overproduction….
…Anyone who saved a penny, anyone who had the least credit at his disposal, speculated in railway [emerging market, internet, energy trading, fiber optic, telecommunication] stocks [debt, currency, interest rate swaps] …Printers, lithographers, bookbinders, paper-merchants and others, who were mobilized to produce prospectuses, plans, maps, etc; furnishing manufacturers who fitted out the mushrooming offices of the countless railway [emerging market internet, energy trading, fiber optic, telecommunication] boards and provisional committees—all were paid splendid sums…. There gradually arose in this period a superstructure of fraud reminiscent of the time of Law and the South Sea Company [and the Savings and Loan debacle]. Hundreds of companies were promoted without the least chance of success, companies whose promoters themselves never intended any real execution of the schemes, companies whose sole reason for existence was the directors’ consumption of the funds deposited and the fraudulent profits obtained from the sale of stocks. [Hundreds of companies collapsed, companies which a year or two before were heralded as vibrant, healthy, vital. Companies where real productive assets had expanded at an astonomical pace. Companies whose shuttering, destruction, bankruptcy was triggered by the self-devaluation of capital as the rate and mass of profits declined from yesterday’s, just yesterday’s high, and liquidation replaced liquidity as the demand of creditors.].”
5. Semiconductors: Capital on a Wafer, or, The Transubstantiation of Value, or, Your Virtual Check is in the Email
Semiconductor fabrication has always been a cyclical business, but a cyclical business with a difference. Over the past 40 years, the semiconductor industry has achieved a compounded annual growth of 17 percent per year. That’s a big difference.
The capital investment requirements of the industry are enormous as the production process can only circulate its capital and operating costs by introducing accelerating speeds, power, and quality to each successive product, thus devaluing its previous products, its previous capital investments. Technical innovation in the production process through capital investment reduces the unit costs of production in conjunction with the technical innovation of the finished product.
The result of this juncture of technical innovation in both process, measured by cost per kb, and product, as measured in millions of instructions per second (MIPS) has been the dramatic decline in semiconductor prices. Private and government organizations have taken on the challenge of quantifying the adjusted price drop for semiconductors, expressed in dollars per kilobit for the individual products of the industry and for all products. The US Bureau of Economic Analysis has that ratio for DRAM chips produced in 1975 at 1.8125. In 1995, the ratio was calculated at .0030 or 1/600th of the 1975 ratio. For the total basket of products, the index of prices in 1996 were less than half the index of prices in 1992. The rate of growth of semiconductor prices for the period 1975-1985 is a negative 36.9 percent per annum. For the 1985-1996 period, the annual rate of decline was approximately 20 percent.
In the mid 1980s, Japan was the source of most of the world’s DRAM production. US companies, reluctant to invest in what had become essentially contract bulk production, abandoned the field and retooled for the production of specialty chips, microprocessor systems, MOS logic chips, and flash memory products. Intel, which accounts for 80 percent of microprocessor sales, developed its “copy exactly” fabrication plant system during this time, bringing these plants online in the mid 1990s. Revenue per employee, measured at $114,000 in 1985, climbed to $461,000 in 1995. Overall corporate revenues tripled while the work force had declined some 30 percent. The estimated capital investment in each new fabrication plant was $1.2 billion.
For the semiconductor industry as a whole, product sales increased 265 percent between 1991 and 1995, leaping ahead 40 percent in 1995 alone, only to collapse in 1996 as the industry had produced too many fabrication plants extracting proportionately more surplus value from less labor and thus, could not offset the reduced rate of profit. Sales declined 8 percent in 1996. Sales did not exceed the 1995 mark until 1999 when revenues were reported at $149 billion.
At the same time as fabrication plants were being closed in 1996-1997, the industry began again its cycle of technical innovation in production process and product. This process centered around developing the 300mm fabrication process, in which a larger wafer would be the basis for production, yielding a greater number of processors, with each processor of greater quality than the previous generations. The capital requirement for each 300mm fabrication plant is estimated to be $2.5 billion.
Capital intensity in the production process, the increased value of the instruments and products used in fabrication, had recorded a compound annual growth rate of 13 percent between 1987 and 1995. Between 1995 and 1999 that growth accelerated to reach 19 percent.
The microprocessor fabrication process was re-engineered to produce an economically viable yield at a faster rate. Utilization of more advanced and reliable manufacturing equipment, faster and better methods for wafer inspection were employed to decrease the time from production to market. Through this acceleration, the fabrication process sought to offset the devaluation of its previous products and techniques.
Sales again rocketed forward, this time to $204 billion in 2000. And once again, at their new historical peak, sales collapsed. In 2001, sales fell to $139 billion. By the end of 2001, 34 fabrication plants, 11.5 percent of the North American total, had been taken out of production.
By the very demands of its own process to realize profit, semiconductor fabrication has replaced its cyclical nature with a structural predicament. The industry itself recognizes that the 2001 contraction is more severe and different in kind than the previous cyclical downturns. Capital spending in 2002 was 38 percent below the 2001 level.
The structural predicament is the result of the accumulation of capital depressing the margin of profitability. The implied margin (revenues minus costs, divided by total revenues) in the fabrication process had declined by 17.5 percent between 1993 and 1999, from 88.2 to 72.8. At a certain point the expansion of production, the increase in the mass of profits cannot offset this decline in margin, this fall in rate of profit. We call that overproduction.
6. Your Check Has Been Lost, But the Bill is Due. Please remit.
If in the past, the years of Thatcher and Reagan and Jaruzelski and Pinochet, capital sustained itself through reducing the standard of living of the society as a whole, the workers in particular, and by creating more and more impoverished poor, that “solution” while still available and still utilized, is no longer sufficient. The structural predicament of capital is no longer remedied by lowering wages, by aggrandizing more surplus value. The structural predicament is the structure itself, the development of the capacity productive apparatus beyond its capacity to reproduce enough profit quickly enough. Now the capitalists, wedded not to production, not to any objects of production, not to any need or use for such products, not to any part of social framework necessary to sustain the previous growth of industry, but only to property and wealth, sees in those articles and objects, that productive apparatus, that social framework, in all that accumulated, crystallized, labor a living threat. A threat no less real than that of workers on strike.
The bourgeoisie, to preserve their property, have to attack and destroy the existing productive capacity. The bourgeoisie sees a possible solution in the South Korean “model,” dismantling and selling off productive capacity; or in the Russian “model,” reducing GDP by half, life-expectancies by 40 percent; or in the Iraq “model,” destroying outright the productive capacity, infrastructure, welfare apparatus of an entire country.
The struggle against capital is the struggle for social expropriation of the means of production. It is a collective act against the destruction of human labor by the demands of private property. Those are the terms of the struggle forced upon the workers, who organized as part of capital itself must stand for the emancipation of all of society from the demands of profit in order to achieve its own emancipation.
Originally produced August 2003.