Friday, December 7, 2012

A Socialist Misrepresentation of a Capitalist Crisis

This post is in response to an article in Socialist Action (SA) entitled A Socialist Answer To Capitalist Crisis. The article is Part One of an abridged version of the Draft Political Report, a product of the Socialist Action 2012 convention.

It is difficult to know where to begin. The article is a mish-mash of fact, fiction, non-sequitur, and sloppy reasoning. Indeed, every sentence could generate an entire essay explaining why it is not true--but I don’t have the patience to write so much, nor would I expect you to read it. So this post is not comprehensive, and is instead limited to more egregious errors.

There are two fundamental facts that the article gets wrong. First, it wrongly claims that working people are, as a long term trend, being impoverished by capitalism. And second, it wrongly attributes the source of profit in today’s economy.

While the article never comes out and directly says it, the implication is that capitalism has made millions of people poorer. For example, they say “Germany, the most economically powerful European nation, has experienced a steady decline in wages.” And, “the rise in the GDP of the BRICS nations—Brazil, Russia, India, China and South Africa—masks the impoverishment of the great majority of the populations of all these countries.” And again, this time quoting an entire paragraph,

China’s new generation of  “middle-class” consumers, touted by the bourgeois press, is countered by hundreds of millions pressed into a government-controlled transient internal migrant workforce, with virtually no rights. Eighty percent of Beijing’s industrial workers, for example, are migrants, mostly young women from the countryside, who labor at sub-minimum wages aimed at satisfying the competitive needs of Chinese and world capitalism. Half of China’s multi-national corporations are U.S.-owned.

Now the truth of these statements depends somewhat on what timeframe one is looking at. Certainly, over the past five years, some of these points are arguably correct, as would be true during any recession. The article is vague about timeframes, which makes it difficult to pin down. But I think one has to look over a longer period than just five years. Let’s instead use the beginning of Deng Xiaoping’s reign in China as the benchmark--he assumed office in 1978, or 35 years ago.

And here is the unavoidable truth: since 1980 more people have been pulled out of poverty in China than ever before in human history. Per capita GDP has increased approximately 30-fold since 1980. Gone are the mass famines, the shoddy Mao suits, the candlelit nights, and the back-breaking, agricultural labor. Instead. China has modern cities, a “middle class” of 250 million people, a working class with food, real clothes, and electric lights, a transportation network, access to the Internet, and is part of the world economy. Of course China still has problems, and of course the current financial crisis makes things harder, and of course they will not progress at anything like the same trajectory in the future (how could they?). But this undeniable fact is irrefutable--because of capitalism and globalization, China is vastly, vastly, vastly richer today than it was 35 years ago. SA’s claim to the contrary is simply absurd.

Likewise, Brazilian per capita GDP has nearly doubled since 1980, India is richer by a factor of three, and wealth has increased four-fold in the USA. The US, however, is a bit of a laggard. Global per capita GDP has increased by almost a factor of five. SA’s claims about China and the world, that “the capitalist-created small layer of ‘middle class’ or higher-paid worker/consumers, usually in the range of 10-15 percent, promoted to create the semblance of an internal market, has been more than offset by the immiserization of the vast majority,” is patently, obviously, and glaringly false. Capitalism and global trade are simply good for children and other living things.

But even the increases in per capita GDP understate progress. The numbers have been corrected for inflation, but over 30+ years inflation is only crudely measured. Corrections fail to take account of technological progress. Consider the following list of things that didn’t exist in 1980: Shenzhen, Pudong, Baidou, Google, statins, hybrids, fuel cells, Internet, parallel processing, Amazon, Acer, Hyundai, Arcelor, FAX, e-mail, smart phones, driverless cars, Watson (of Jeopardy fame), 3D printing, nanotechnology, fracking, GM foods. Who, in 1980, could have guessed that the richest, non-oil-based economy in the world in 2012 is...Hong Kong! All of these are products of capitalism, and all of them make our lives better, cheaper, richer, happier, healthier.

SAs claim that capitalism impoverishes working people is not true.

A second flaw in the Draft Political Report comes from two sources. One is straight from Karl Marx himself, namely the labor theory of value. The second is Lenin’s book, Imperialism: The Highest Stage of Capitalism (now available on Kindle for $5.22). The former theory states that the value of a product is exclusively invested labor, arbitrarily ignoring the other two factors of production, namely capital and raw materials. The latter theory asserts that the rich countries remain rich only by extracting resources and cheap labor from “neo-colonial” countries. Lenin’s theory posits the global economy as a zero-sum game--if I win, then you must lose. Another way to phrase it is as theft--”imperialists” steal from the “neo-colonial” countries.

Thus, according to SA, US-China trade cannot be to the benefit of both countries--if the US benefits, then China must be “immiserated.” Of course this is obviously false--why would China trade with the US if there were no benefit for China? Indeed, we have already described the stunning benefits which China has reaped from global trade. Trade, almost by definition, benefits both parties. If I buy an tomato, I get a tomato and you get some money. We’re both better off.

In SAs particular model, what US imperialism is stealing is labor. By way of example, the article cites Apple and the iPhone:

The recent exposure of Apple Computer’s super-profits from the exploitation of Chinese workers, on a scale unimagined in the past, shocked more than a few. Apple’s China-based iPhone and iPad factories, employing some 1.2 million workers, were recently exposed as classic super-low-wage sweatshops, with workers forced to labor endless hours on demand under unsafe conditions, including breathing in poisonous chemicals.

The moral, as I read it, is that US profits (and, specifically, Apple’s profits) arise only from the gross “exploitation” of Chinese labor. But I think SA has cause and effect precisely reversed: Apple hires Chinese labor because Apple is profitable, and not the other way round.

The error in SA’s reasoning is they fail to notice that the iPhone is not a commodity. It is, instead, a custom product uniquely designed by Steve Jobs that turns the traditional cell phone into something completely different--a smartphone. Even today, the iPhone is priced well above competing smartphones as it delivers high quality, great style, and cool status. The profit margins are correspondingly huge--sufficient to hire 1.2 million Chinese workers.

For a high-margin item, the per-item manufacturing cost is not a significant issue. The iPhone only costs about $8 to manufacture, even with 1.2 million employees. But as smartphones become a commodity the assembly cost will become significant. Per-item cost is reduced by capital investment and automation--so expect the number of employees to fall dramatically in coming years (or months). Today Apple can afford all those employees only because the iPhone isn’t a commodity and has a value well beyond the cost of production. The labor theory of value is precisely wrong.

And this leads to the final point. The article states that:

It is increasingly obvious to workers everywhere that the only way for capitalists to compete on world markets is to adopt the Chinese “model.” In the U.S. this means the classic race to the bottom—the off-shoring of jobs and the use of low-wage immigrant and near slave-wage prison labor.

If the labor theory of value were the only truth, then this paragraph would follow. But there are at least two caveats to the theory. One, that we’ve just mentioned, is that it only really applies to commodities--items that compete only on price. The second is also important, and that is the capitalist can vary the ratio between capital investment and labor--i.e., he can reduce labor costs by investing in automation. For bulk commodities automation reduces the per-item cost. This is why primarily low-wage jobs are offshored; for those the benefit of automation is the smallest.

And here is the clinker: the ability to automate jobs has increased exponentially over the past ten years. Computers have already automated the secretary, the receptionist and the travel agent. Lawyer jobs are now computerized and the job market for that profession is going through the floor. Doctors are next in line--there will be far fewer doctors in the near future. Likewise, college professors are about to be computerized away. Google has developed self-driving cars, and has signed an agreement to begin replacing New York Taxicabs in 2014. Within a few years cab drivers will be a job of the past--followed soon by truck drivers. Fighter pilots are already extinct--can commercial airline pilots be far behind?

3D-printing, also known as additive manufacturing, will revolutionize the way things are built. No more rivets, no more welding, no more assembly, no more parts manufacturers--most of these jobs will disappear. The 1.2 million Chinese workers whom SA feels so sorry for will really be miserable when they lose their jobs, replaced by a few dozen employees in Pittsburgh who will “print” iPhones out by the millions.

The global financial crisis is serious. It will impoverish millions and set the world back by a decade or more. But slightly longer term there are untold riches on the horizon. My grandchildren (should I ever be so lucky) will be vastly richer than anybody alive today.

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