Encyclopedia of Anti-Revisionism On-Line

The New Voice

Imperialism Today: An Economic Analysis

Where Do Profits Come From?

The left wing movement in the U.S. admittedly has a lot of problems. First of all, they have to deal with the most powerful (at least superficially) of the imperialist countries. Secondly, imperialism is a most complex economic and political system. Being complicated, this makes it easy for the ruling class to fool present and potential opposition by the use of deliberate fraud. This fact leads to the principal problem of the left in this country–understanding how the system of imperialism operates.

Imperialism is basically an economic system. As Lenin says, it is capitalism in its monopoly stage. Hence, such terms as profits, wages, or exploitation, refer to economic phenomena. This point should be kept in mind. Exploitation refers to the economic sphere not to military or political suppression. In order to understand imperialism it is necessary to understand economics. Marxism-Leninism is the only rational scientific approach to economics. It is the only approach which describes how the imperialist economic system operates. Basically, there are only two approaches to economics or any other discipline: the capitalist approach and the working class approach (Marxism-Leninism).

Capitalist economics (economics from the businessman’s point of view) is the economics that is taught in the schools and universities. It is the economics that is used by newspapers, TV commentators, government officials for propaganda purposes, etc. Consequently, businessman’s economics is the only one that the average person comes in contact with. Very few people are familiar with M-L economics. This statement applies to the left as well. Namely, many people on the left are unfamiliar with M-L economics. They might be familiar somewhat with what Lenin said about the state or what Mao said about dialectics. But many leftists and leftist groups have not understood and/or read Marx’s “Capital.” Since these people are unfamiliar with working class economics, they draw on the only economic analysis they are familiar with–businessmen’s economic analysis. Thus capitalist systems of fraud are smuggled into the working class movement by working class theoreticians who quite often have the best of intentions.

One of the theories that has been developed by the capitalist economists to deceive the working class is the theory that workers in imperialist countries are conservative because they have been bought out by the businessmen (or as some phrase it–by the system). This theory was strong in the student movement (S.D.S.) a few years ago. The right wing of S.D.S. put forward the theory that the wage and salary earners were conservative and were the main support of Imperialism, while the well-to-do students (who would become professionals and managers) were the new revolutionary class. The capitalists acted to support this theory by staging “hard hat” demonstrations in opposition to the student anti-war activities.

Well, there is another variation of this anti-working class theory going around. This theory is not only being spread among students but is making headway among certain segments of militant workers. This variant of the theory goes approximately as follows:

The entire working class in imperialist countries is bribed to support the operations of the system, both at home and abroad. The capitalists get the money for these bribes from their exploitation of the people and resources in the underdeveloped countries.

This theory assumes that most (if not all) of the profits of the businessmen of an imperialist country are made from the labor of the people and/or the natural resources of the colonies. Also, since all the workers of an imperialist country are bribed by some of the profits derived from the colonies, workers benefit economically from imperialism. Thus, imperialism is in the interest of the workers in the imperialist country. Or to put it another way, workers benefit from the operation of capitalism in its monopoly stage (Lenin’s definition of imperialism). This means that both workers and capitalists benefit from monopoly capitalism, and hence class conflict disappears. Therefore one of the bases of Marxism-Leninism, the recognition of the class nature of society, along with the irreconcilability of the economic interests of these classes, is repudiated. Consequently, this theory is anti-Marxist-Leninist in an obviously liberal way. (The liberal denies the existence of classes, or at least of irreconcilably antagonistic classes. The state is a neutral body standing above society reconciling the differences between individuals or groups, and even classes if you believe they exist.) This is a particularly clear illustration of how a superficially ”radical” theory, on closer examination turns out to be purely liberal, and hence, objectively speaking, pro-imperialist. This is what comes of not studying Marxism-Leninism in a serious way. What one is left with then (in the absence of M-L theory) are vaguely conceived socialist aspirations combined with petty bourgeois (i.e., liberal) theory. If liberal theory is not replaced by M-L theory, then one is left with the liberal theory he has been taught in this country. In the modern world, your theory is either working class (M-L) or capitalist, there is no third (non-political, above-class, or non-class) path or theory.

Of course, denouncing the “all workers are bribed” theory is not enough. It must be shown what the correct solution is. Thus it is necessary to show where profits do come from, as well as where they do not come from.

The total output of a society, in goods and services, is divided among the different classes in that society. (A TV would be a good, while TV repair would be a service.) The wage and salary earner gets part of this total output in the form of wages and salaries; the landowner gets his part in the form of rent; and the businessman gets his out in the form of profits (which includes interest}. Thus profit refers to the part of the total output of society that is taken by businessmen. Now, note that profit refers to (a part of) the output of goods and services which are a product of labor. That is to say, this output of goods and services is produced by the labor of the wage and salary earners. (The output of independent craftsmen and small farmers is ignored here. Their output is quite small in the U.S.) Also profit is not money. Monetary forms merely represent the relative magnitude of such things as profit. Therefore profit is the product of labor, and represents specific goods and services.

Incorporated in this concept (of “bribery” of workers in the imperialist country) is the idea that profit is gained only or mostly from the people and resources of the colonies. Is this fact true? No, it is not. Very little of the profits of the imperialists is gotten from the exploitation of the labor of the people or the resources of the colonies.

Profit (the principal form of economic surplus produced under capitalism) comes from or is produced by the wage earner who works for the businessman. Economic surplus is produced by the productive labor of people. Under capitalism, the productive labor that produces economic surplus is wage labor, the labor of wage and salary earners. Of course, all the output of the productive labor of wage and salary earners is not economic surplus. Part of the labor force’s productive effort goes to produce wage goods. Wage goods are defined as all goods and services consumed by the wage earning class. The amount of goods and services (the standard of living) of the wage earners is culturally determined. It is determined by: (1) the history of the class struggle, and (2) the level of economic development in each country.

The goods and services produced for the wage and salary earners are subtracted from total production. What is left is called the economic surplus. The labor that is used to produce the economic surplus is called surplus labor. The labor that is used to produce the wage goods is called necessary labor. It is called necessary labor because it 1s the amount of labor necessary to support the working class so that it is possible to produce an economic surplus. (See Marx, Capital, Vol. I, Ch. 9.)

The relation between the necessary labor and the surplus labor, Marx calls the degree of the exploitation of labor-power. Degree of exploitation = Surplus labor/Necessary labor or s/v.

Let us take a look at this from the level of the individual capitalist enterprise. Assume that the capitalist employs a certain number of workers for eight (8) hours a day. Let us also assume that four (4) hours are necessary labor and four (4) hours surplus labor. The workers work half their time for themselves (the equivalent of producing the wage goods themselves) and half their time to produce the capitalist’s profit. (For our purpose let’s assume all the surplus takes the form of profit.) The businessman’s profit is produced by the labor of wage and salary earners. It is not produced for them by farmers (including peasants) or small businessmen.

The next question to consider is what determines the proportion of labor of the wage and salary earners that is devoted to the production of (1) wage goods, and (2) surplus product (the things profits are spent for). There are two principal factors: (1) the standard of living of the wage and salary earners in that country at that time, and (2) the level of industrial development of the country.

In an industrialized country it may only take four hours a day of average labor to produce the wage goods. This would leave four hours a day for the production of the businessman’s profit. Advanced technology (along with greater skills) is what increases the productivity (the output) of a given amount of labor.

In a non-industrialized country, it usually takes a great deal of labor to produce even the wage goods of their low standard of living. Here, a proportion of six (6) hours for the wage goods and two (2) hours for the businessman’s profit may not be inappropriate in most cases. A smaller proportion of the workers’ time is spent providing a surplus when the workers are working with a primitive technology.

Recently, of course, imperialist businessmen have been training and employing workers in colonies in a phase or step of a highly mechanized production process. They have been employed in the labor-intensive end of the operation. In effect, imperialists have been able to import the cheap labor of the underdeveloped country into the productive process of the highly industrialized countries. Therefore, to a limited extent, businessmen are able to make a high rate of profit (that is appropriate to an industrialized labor force) off the labor of laborers of an underdeveloped country.

They have been able to do this mostly because of the development of modern air transportation on those goods that are light and have little bulk (e.g., electronic equipment). The scope for this kind of development is obviously limited. A very small proportion of the total output of Imperialist countries is produced with the labor of people in the colonies.

Despite this development, the great majority of the laborers who produce profits, are in the industrialized countries. And the businessman, on the average, makes more profit on the labor of each worker in the industrialized countries than in the underdeveloped countries. He does this (1) because the proportion of surplus labor to necessary labor is usually greater in the industrialized country and (2) because the amount of surplus produced per hour of labor is greater in industrialized countries.

Even though the great majority of the businessman’s profits is made on the labor of the working class in the capitalist countries, there is still a greater profit made on investments in underdeveloped countries than might be expected (given the information of the past few paragraphs).

The principal reason imperialists have taken over colonial countries is to make use of their raw materials. Access and control of the raw materials that are a necessary component for the production and sale of their product is an absolute necessity for certain monopoly capitalist firms. They can be driven into bankruptcy or bled white by competitors if they do not control their raw materials. Raw materials are more easily monopolized and hence more important in some industries and less in others. They are more important in the steel, aluminum, and oil industries, than they are in the automobile and machine tool industries, for example.

Once these monopolists control their raw materials, they are not only safe (in this regard) from the attack of their competitors, but are generally in a monopoly position in regard to the people or firms who buy their product. The purpose and effect of a monopoly is that profits and usually prices are above the normal. Those higher than normal profits are gained from (1) the transfer of part of the profits of less favorably situated firms (on the average, profit rates are positively correlated with asset size); and (2) a transfer of income (largely from wage and salary earners) through the higher price charged. This is an indirect way of increasing the rate of exploitation of labor power by increasing the surplus labor and decreasing the necessary labor (i.e., by decreasing amounts of wage goods acquired).

To summarize the latest point, the above average profit apparently gained in the colony was really produced in the imperialist country. It was just an accounting manipulation and convention that shows the extra profit as earned in the colonies.

An example of profit being generated in the industrialized country and then being attributed to the colony can be taken from the petroleum industry. The oil industry has been dominated by a cartel (made up of the biggest oil firms) for quite some time. This cartel shared out markets, controlled production, and set prices. These prices were high enough to realize all the profit the cartel thought they could get. In the cartel’s accounting system, most of the profits are allocated to the crude petroleum phase of the process. For example, in 1954, Standard Oil of New Jersey showed only 3 and a half percent of their profits as coming from the refining and distributing (including most transportation) phases of the operation. These two phases use the overwhelming majority of the labor involved in the petroleum industry. This reflects the way the cartel manipulates the accounting system.

The basic price which the cartel controls is the price of crude. The price is set high enough so that the less efficient major producers can make a reasonable profit. (This is the Texas-Gulf Coast field.) All the other cheaper producers would make a greater profit.

“Their (the cartel’s) costs were closely guarded secrets, but the U.S. Department of Commerce in 1946 estimated that Arabian crude cost 30 cents a barrel, and Venezuelan 50 cents, against $1.85 for Gulf Coast crude. At that time Texas crude was selling for $2.65, and that price governed the world price. In 1955 the United Nations Economic Commission for Europe put the Arabian cost of production at 35 cents a barrel.

“In 1955, the Gulf Coast price was $2.90, and foreign oil had gone up proportionately. The differential in favor of Arabian and Venezuelan crude was absorbed in profits, of course, and not passed on to consumers.” (Harvey O’Connor, The Empire of Oil, pp. 219-220.)

“Jersey derives roughly a third of its golden flow of profits from Creole petroleum, its subsidiary in Venezuela, a third from the Near East, and a third from domestic operations, principally through Humble Oil and Refining,” (1960). (Harvey O’Connor, World Crises in Oil, p. 7.)

Superficially, it appears that most of the profits of Standard Oil of New Jersey come from underdeveloped countries like Venezuela and Iraq. According to Jersey’s books, this is so. But as we know, the superficial view is false. The accountants arbitrarily assign the profits to whatever phase of the operations they want to. Actually most of the labor involved in the discovery, production, and distribution of petroleum products is in the refining and distribution end of the process. But the accountants assign most of the profits to the production of crude. And most of the profits in crude are assigned to the operations in underdeveloped countries.

The cheapness of the cost – of production in colonial countries does not come from the cheap labor but from the ease with which the oil is extracted. A gift of nature has been capitalized through monopoly. But this does not mean that the profit has been made in the colonial countries. Just the opposite in fact, since we know that profit can only be produced by labor. And to repeat a point made earlier, the large profits that the oil monopolists attribute to their colonial operations are really made from two sources:

(1) The principal source is a transfer of Income from the wage and salary earners to the monopolists by charging higher prices (monopoly prices). By charging higher prices, they are able to pick the worker’s pocket of part of his Income that was supposedly part of his wage goods. But with less income remaining, he is able to buy fewer wage goods. Consequently the effect is the same as a lowering of necessary labor (V) and a raising of the proportion of surplus labor (S), for all workers who purchase petroleum products or products that are made with petroleum either directly or indirectly. In other words, the rate of exploitation (S/V) of the workers of the imperialist countries is Increased through the cartel’s monopoly.

(2) A second source of the above normal profits (and a far less important one than the first) is a transfer of part of the profits from less favorably situated firms to the petroleum firms. Remember, on the average, profit rates and asset size go together.

Another way of trying to attribute the source of most of the profits of imperialist businessmen to the colonies is to try to attribute the profit to the raw material itself. We will again use the petroleum industry as our example.

Some capitalist theorists claim that the profits are largely created by the petroleum itself. This is similar to the theory that land creates rent and capital equipment creates profit, rather than labor creating both. The only reason given for such contentions is that if it were not for the petroleum there would not be any profits in the petroleum industry, just as there would not be any rent if there were no land. And since petroleum is owned by some families, they should be paid (profit) for allowing society to use their oil, just as the landlords are paid (rent) for allowing their land to be used.

Of course, petroleum and land do not create profit and rent. Private ownership (i.e., monopoly) created profit and rent. They are monopoly Incomes. Further, these incomes do not represent additions to total output, but deductions from the income of the workers who produce food on the land and fuel and lubricants from the petroleum. Profit, interest, and rent are merely bribes paid to owners to allow society to produce and live. To summarize, profit is the product of labor and not of inanimate or non-human objects.

The theory that all workers in imperialist countries are bribed by profit gained mostly in the colonies is false. It is false if profit or surplus value, is produced by the labor of wage and salary earners. The wage and salary earners in the underdeveloped countries are a small percentage of the wage and salary earners in the imperialist countries. Secondly, productivity in relation to living standards (their rate of exploitation) is usually lower in underdeveloped countries than it is in the Imperialist countries. Thirdly, the productivity of an hour of labor spent in producing surplus (profits) is significantly higher in industrialized countries. Consequently, the overwhelming majority of the imperialist businessman’s profits are made on the exploitation of its wage and salary earners in the imperialist country itself. It is a much higher proportion than the 60 to 65 percent shown in the usual corporation and government statistics. And it is higher for the reasons detailed earlier in the article.

A reader might ask, why all this hubbub about where profits come from? What difference does it make? It makes a lot of difference. Many pro-imperialist theories and rationalizations can be deduced from the “all the workers are bribed” theory. Here are a few of the most important.

As mentioned in the first part of this article, this theory supports the imperialist’s contention that all classes in capitalist countries benefit from the imperialists’ exploitation of colonies. And since they benefit from it economically, workers ought to go out and fight to hold and expand the imperialist system. The only basis that the “bribery” theory leaves for opposing imperialism is a moral basis. And this is no basis at all. As all Marxists-Leninists know, there is no “morality” Independent of class (i.e., economic class Interests). This above-class morality is another instance of the petty-bourgeois, liberal, pro-imperialist basis of this “bribery” theory.

Another theory that flows from the “all workers are bribed” theory is the idea that workers cannot successfully oppose businessmen and their system of imperialism until all the colonies have won their independence and consequently the imperialist businessmen have no more profits with which to bribe the workers. Then, presumably, the capitalists would have to reduce the standard of living of the workers down to one like the peasants and workers in the colonies (used to have) in order to make a profit. Then and only then would the economic interests of the workers become opposed to that of the capitalist class. This theory, as we have previously shown, is wrong at every point.

But what is particularly bad about this theory is that it says successful opposition to or class struggle with the businessman is hopeless during the present era. Only after all colonies are free will a sufficient number of workers join a struggle against the businessmen. This theory leads to defeatism and lack of struggle. Consequently, we would expect any group which adhered to this theory to be characterized by little participation in class struggles.

In conclusion, the “bribery” theory is reactionary because it abandons the working class to the businessman, and claims that imperialism is in the economic interests of the working class. This is false. Actually imperialism is very much against the economic interests of the working class of the imperialist countries. As a result of the exploitation of the colonies, they get lower wages, higher unemployment, and many get killed or wounded in defense of imperialism. Therefore, it is in the economic interest of the wage and salary earners of all countries to oppose imperialism now.