Economic Background Report

(8/19/03 draft)

The introduction of labor-replacing technologies into the capitalist economy has set into motion a complex process of destruction. The dynamics of capitalism demand new technologies, those technologies destroy the very foundation of capital. The ruling class fights to maintain old property relations, these actions destroy the social relations which enable capitalism to function. The terrorism of the digital economy provides the environment for social activity. The propertyless classes fight against the old property relations. This is the process we find ourselves in: Humanity is negotiating the leap from one mode of production to another.

The limits of capitalism

Capitalism as a process is governed by a handful of rules or laws. These laws are objective -- they cannot be wished or willed away. The goal of the capitalist is the maximization of profit. If one capitalist fails in this task, another is happily willing to drive him or her into poverty. Profit is a form of surplus value -- the unpaid labor of workers. Goods and services are bought and sold on the basis of the socially necessary labor it took to make them. Commodities must be sold for profit to be realized and the circuit of production to continue.

These laws operate within various environments. There is the world of nature (e.g., sources of raw materials and energy, also can the planet sustain life with breathable air and drinkable water?). There is a technology climate (what our tools and techniques make possible). And there is history.

On the face of it, capitalism as a system has internal and external limits: If labor is constantly being replaced by new technologies, where will profit come from? Who will buy commodities? If the planet is finite, where will raw materials come from? What new markets can be found? If capitalism treats the planet as a toilet, what happens when the necessaries of life are exhausted or despoiled?

The concept of "limits" does not mean that there is some endpoint that capitalism will reach and then stop. Capitalism will not disappear of its own accord. The owning class will not give up their property and control and simply walk away. Capitalism is a dynamic, complex system, so nothing happens in such a straightforward way. The relatively static relations of capitalism (e.g., between capitalist and worker) interact with constantly developing technology and the way that people interact with that technology. New technologies mimic and replace more and more kinds of human activities (allowing capitalists to replace workers). But they also allow opportunities for Capital. New techniques and materials allow more efficient use of natural resources. Digital networks allow money and commodities to circulate faster, and allow credit to be extended in new ways. Capitalists can use science and technology to create and satisfy new desires -- new kinds of commodities that provide new ways to generate surplus value. Public spaces and non-market activities (everything from public parks to libraries to childcare and cooking) can be privatized and pulled into the market as profit-making activities. New technologies allow production to be moved around easily to take advantage of cheaper wages. Tendencies generate counter-tendencies, which feed back into the process and modify the process. But the steps taken to maintain profit, from the human point-of-view -- for us the only perspective that matters -- means the polarization of wealth, more poverty, more illiteracy, hunger, disease, war, and otherwise wasted lives.

The "limits" of capitalism describe the boundaries within which developing technologies, people using those technologies, and the relatively static property and social relations within which they develop, how all of these things interact. "Limits" describe a space or region where the contradictions of co-existence between capitalist and worker break down and are replaced with the antagonism of the propertied and the propertyless. "Limits" can help us understand that we have entered an epoch of social revolution, where a general process of social destruction has set in as old relations of private property attempt to digest the productive explosion of electronics. And that the only resolution to the social destruction is the re-organization of society on the basis of what the new technologies make possible: from each according to ability, to each according to need.

General crisis, historical crisis and cyclical crisis

Whereas the "general crisis" of capitalism in the first half of the 20th century was a crisis of imperialism, resolved through world war and globalization, the historic crisis of capitalism trying to swallow electronics is a crisis ultimately without resolution.

This historic crisis has been described in many places in League writings: Labor-replacing technology creates pressure on the production and realization of surplus value; production intensifies; workers worldwide compete with robots; debt swells; wealth polarizes; market and social volatility rises; social life is privatized and disintegrates; the environment in which we have evolved is destroyed. The future of humanity is threatened.

Against this long-term backdrop of historic crisis, capitalism continues to thrash through its cycles of boom and bust. Taking a look at the 1990s "boom", we can see how the "boom" phase of the business cycle today, in the context of the historic crisis, differs from those cycles of the past. The 1990s was a period of rising gross domestic product (GDP), high corporate profits and a soaring stock market -- hence a "boom". At the same time, wealth continued to polarize: by 2000, the wealthiest one percent were getting close to holding half of the wealth in America; the bottom 80%, less than 20% of the wealth. Real incomes for most people fell (e.g., in New York City wages rose 3% from 1975 to 2000, while apartment rents rose 33%). Faced with falling wages; families responded by taking on more debt (personal debt rose from $1.4 trillion in 1980 to $6.5 trillion in 2000) and sending more members of the household out to the job market, or working more jobs or more hours. That is, staying even required more credit card bills, longer work weeks, less family time, more bankrupcty, more anxiety, and the general social destruction that goes along with all of that. And this was the good part of the cycle. (see Richard D. Wolff, "The U.S. Economic Crisis: A Marxian Analysis", _ReMarx_, Vol 14 No.1, 2002.)

The downturn of the past three years has families starting from bad, and falling to worse. The many features of the downturn -- the stock market collapse, Enron+, 9/11, the jump in unemployment (up almost 50% from 2000, now at its highest level in nine years), persistent massive debt, the state budget crises, and various maneuvers to transfer more wealth to the rich via tax cuts -- ultimately dump on the worker/consumer/new class. The "boom" of digital capitalism for most people isn't too good; the bust of digital capitalism is a disaster.

Add to this the risk of deflation. In a major shift, the Federal Reserve Bank has become concerned about the risk of deflation. Deflation is a period of falling prices which further squeezes corporate profits, which can then begin a vicious cycle of falling wages and layoffs, further squeezing profits, leading to more wage cuts and layoffs, etc. etc. The results would be devastating for the employed and the unemployed alike -- foreclosed homes, repossessed cars, more bankruptcy. A deep deflationary period would further worsen the conditions for most people. Yet even if prices stayed the same, if capitalism continued on its same course, conditions would still be bad for most people.

It is also entirely possible over the next several months or even years that we will enter a period of what the government and bourgeois economists and the business press will call a "recovery" -- profits and GDP and the Dow Jones Industrial Average may go up. Under electronics-based capitalism, however, the concept of "recovery", whether partial or full, has no meaning. For most people, the face of "recovery" is mountains of debt, overwork or slave work or no work, contingent life, polarized wealth and poverty, cuts in education, health care, and infrastructure.

As we have noted before, the impact of the introduction of electronics into capitalist production shows up most dramatically not in employment figures, but in the polarization of wealth. If the 1990s "boom" revealed a steady separation into a group of super-wealthy, and a broad opposite pole (80 percent) holding onto less than 20 percent of wealth, the bust will show a dramatic jump in separation. The stock market collapse transferred over $7 trillion from personal savings and pension plans. The widespread layoffs -- especially in well-paying jobs in manufacturing and high tech -- will further hit income and savings. State budget cuts will force more people to pay for more services, including education and health care. More money will drain from the vast majority to the tiny minority of wealthy capitalists.

The polarization of wealth results in the key trends of the historic crisis: more and more Americans under economic attack; the disappearance of a middle capable of holding together the poles of wealth and un-wealth; and the fertile social conditions for planting the seeds of a vision of a new society.


Like any process, capitalism has conflicting tendencies. The common interests of capitalists-as-a-class conflicts with the competing interests of individual capitalists (or regions, industries, etc.). The long-term tendency towards the formation of a transnational capitalist class, based in global production selling to a global market is disrupted, especially during crises by the counter-tendency to fall out. With a downturn in the economy, the competition within global capital re-asserts itself. This is expressed today, e.g., in the competition between the dollar and the Euro; in the competition for raw materials; in the competition for markets and profits.

The main tendency of globalization is expressed through speculative capital, the most digital, de-nationalized, globalized, and networked of all forms of capital. The more open, dynamic, transparent, and marketized the economy, the better for speculative capital. Whether the Euro is strong or weak, or the dollar rises and falls -- from the perspective of global capital, it doesn't matter. Surplus value is surplus value, whether it comes from Gary or Guangdong or Gujurat; the global digital financial system assures that it gets re-distributed; and volatility just provides more opportunities to speculate. What does matter, though, is that some overall control and stability is maintained.

From the view of individual economies, enterprises and, of course, workers, the consequences are brutal and devastating as communities and lives are destroyed. Capital runs the real risk of these instances of local destruction turning into a political challenge, either from the losing capitalists or workers or the growing new class. The counter-tendency then asserts itself: protectionism, capital controls, single-nation hegemony, anti-globalization.

China is a case in point of the complexities of globalization. China is an awakening economic giant. Fifty years ago it had a devastated backward peasant economy. Today it is the world's sixth largest economy (though still behind France), with annual growth rates well-above the world average. China has been the low-cost factory of the world, but is also developing advanced technologies, including microchip, genomic and space industries. Some U.S. manufacturers like the low cost production opportunities and the new market opportunities. Other manufacturers, especially those too small to compete effectively on a global scale are squeezed or driven out by Chinese production. What policy towards China? On what terms will China be integrated into the world economy? To be fully integrated, China will need to privatize the 70% of its economy still under state control; and to allow its currency to float against the dollar. The Chinese yuan is currently tied to the U.S. dollar, and so it rises and falls with the dollar, keeping Chinese goods cheap in the U.S. Either step opens China to the full force of globalization, with potentially devastating human -- and most likely, political -- cost.

New forms of production and distribution

In the realm of the objective, we have long argued that electronics -- the broad range of labor-replacing technologies in a multitude of forms -- is a new quality. The technology revolution has reached a level now that we can begin to see the possibility of a communist economy -- from each according to ability, to each according to need.

On the production side, large-scale collaborative projects like Linux (a computer operating system written by thousands of programmers around the world connected via the Internet and made available for free) have demonstrated the feasibility of communist production on a large scale. Distributed computing projects, where people around the world contribute idle personal computer time for everything from the search for extra-terrestrial intelligence to cures for breast cancer are another example of massive social collaboration for the common good. The revolutions in communications and transportation has made these "technologies of cooperation" possible. These instances can be held up as examples that communist production -- the "from each according to ability" half -- is practical and achievable.

The distribution side of the communist economy -- the "to each according to need" is likewise suggested by spontaneous acts. Where commodities can be rendered in digital form -- music, computer programs, DNA sequences, movies -- people are quite happy to share and share freely. This has opened up a vicious battle over property rights. The capitalist class has responded with police state legislation, mass surveillance, and show trials. Here the absurdity of industrial-age property concepts in the age of abundance is perhaps most clear. Where food is destroyed when people are hungry, or houses vacant when people are homeless, or drugs that cost pennies to make are priced out of the reach of the sick -- here the terrorism of industrial-age property relations is most violent.


We have moved into a dangerous time of important opportunities. The objective conditions exist to make the promise of a society free from want: technologies capable of producing abundance; held back by an economic system that sustains itself only by attacking and feeding off of the vast majority of the world's population. Survival is only possible with the destruction of the property relations of capitalism -- the private ownership of the social means of production. Here the role of the subjective -- the human, social, conscious aspect -- becomes critical. The seizing of the means of production and putting them into public hands is an act of people. Crisis creates an environment for the propertyless new class to act -- people spontaneously moving in some way to secure food, housing, culture, survival. But the act of destruction cannot complete successfully without a conscious struggle to put the private means of production into public hands.

Comments? Email me at jd-at-gocatgo-dot-com
Minor wording changes made 8/9/10