Chris Harman Archive   |   ETOL Main Page

Chris Harman

Better a Valid Insight Than a Wrong Theory

(July 1977)

From International Socialism (1st series), No.100, July 1977, pp.9-13.
Transcribed & marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

AS USUAL, Mike Kidron’s article combines three things – immensely useful insights into the development of capitalism; a way of presenting these insights which is abstract in the extreme and which obscures much of what is said; and practical conclusions that do not by any means follow from the analysis and which, if taken seriously, could be very dangerous.

The great strength and the great weakness of the article is contained in its basic precept – that the world today is dominated by a system of fully integrated state capitals, in which the freedom of operation for the old private capitals has been reduced to a minimum.

From this follows Mike’s stress on the growing international anarchy of the system – its drive into a new period of crisis as ‘military-competitive’ and ‘economic-competitive’ functions are merged and as the workers’ life outside as well as inside the factory is integrated into the system.

The practical conclusion (if practical conclusion it be) also follows from this precept. Trade unions arose from a struggle within private capitalism, seeking to overcome the effects of its anarchic operation on workers; under state capitalism, the struggle of nationally based trade unions against ‘anarchy’ can only be captured by the state capitalists intent on strengthening the competitive power of their individual, national components of the system. The fight for reforms ceases, according to Kidron, to be a potentially revolutionary fight against capitalism. Instead it becomes a fight to integrate a minority of workers into the state, the main element of the system itself.

There are many positive aspects to this account. It stresses the vital proposition that the state is king in the modern world, not the old-style private firm, still less the individual entrepreneur. As such it is a powerful counterblast to the multitude of reformists of the Stuart Holland stripe who want us to line up against what they claim to be ‘the main enemy’ – whether it is the textile industry of some Third World country, the international banks, the multinational corporation or the ‘unpatriotic’ capitalist who will not invest in Britain. By the same token it is also a powerful counterblast to the latter-day revisionists, who prattle on about what Marx has to say about capitalism without noticing that the world has changed profoundly since Marx died.

Finally, it protects us from those like Poulantzas who would restrict the working class to the ‘real workers’ who produce surplus-value, excluding those workers who do not create surplus-value but who are employed by capital (often in the garb of the state) to perform labour that is necessary for the system – teachers, hospital workers, dustmen, social workers.

But the account suffers from one great fault. It is an abstraction that projects present trends into the future – a future that could not come into being without many crises and conflicts, and perhaps not even then.

State capitalism and the multinationals

LET US begin by looking at how the analysis hooks onto capitalism today, not some hypothetical future capitalism. Despite the trend to statification, inside every national capitalism (at least, every national Western capitalism – the extent to which it is also true of the Eastern state capitalisms is an interesting but unresolved question) there remains a variety of differing, competing capitalist interests. Of course, regardless of the espousal by some sections of the national capital of anti-statist ideologies, in the last resort all of them depend on the national state to defend their interests. But it does not follow that

  1. the conflicts with each national capital are not crucial in shaping political life, or
  2. the particular sections of the national capital are captives of the state.

Nor do these conflicts arise from a last-ditch battle by residual interests, medium-size capitals left over from a previous era. The conflicts are built into the way in which capitalism operates today.

To take the most obvious example. In Britain there is a dominant coalition of interests (ranging from the British and foreign, mainly American, multinationals to City-based money capital on the other). These interests are quite prepared to co-operate with the state and to leech off it. But they have at the same time resisted all the advances of the ‘state capitalists’, of those who want to integrate them into the state to safeguard the interests of ‘British capital’ through compulsory planning agreements, the NEB, direction of investment and the like. The apologists for ‘British capital’ (of whom Tony Benn and the ‘left’ of the trade union bureaucracy are prominent representatives) found themselves very isolated when it came to the argument over the Common Market – even though they had plenty of purely economic arguments to prove that the bulk of British capital (i.e., those sections without an international dimension) should keep out of Europe.

This example brings out the essential weakness of the overstatement in Kidron’s argument. The trend is towards state capitalism, towards the complete merger of individual capitals in each country with the national state. But the trend is also to the internationalisation of production: the most modern techniques are developed on an international scale; the resources for participation in key industries like chemicals, aerospace, computers, and, increasingly, motors can be obtained by pooling the resources of more than one country.

These two trends – towards state capitalism and towards internationalisation of production – are both complementary and contradictory. A modern aerospace industry not at least partially integrated into the national state is a pipedream; but so too is a modern aerospace industry that cannot find some way of straddling national frontiers.

For the most advanced countries this means nationally based industries that have a vital multinational component. The future of Lockheed is linked to the future of US capitalism, but also, to a lesser extent, to the future of Rolls Royce. The future of Ford depends both on US capitalism and on Ford Europe. IBM’s activities, although skewed in favour of the American home base, form an integrated, international operation.

What is true of American capitalism, which has the largest national base, is even more true of smaller capitals like Britain. Here some of the leading industries have reached a point where their overseas investments are in the same league as their domestic investments.

This means that even in the advanced capitalist countries, cross-cutting the ‘state capitalist’ trend is another trend – towards dependence on firms which see their interests as differing from the interests of the national capital. Of course, they have a home base. Of course, they depend upon a national state to bail them out when it comes to the crunch. But that is not the same as saying that they will willingly subordinate themselves to the national state. Consider the bitter divisions within the US ruling class over the role of the oil companies during and after the oil crisis of 1973-4.

Kidron also omits from his picture another major trend. The internationalisation of the system has given birth to a new form of finance capital. Traditional finance capital of 1914 – the fusion of banking and industrial capital – was based on the fact that the banks could develop a national status while industry was still very much locally based. Once industrial capital acquired a national scope, the independent role of banking capital was very much circumscribed. Now, however, as Nigel Harris shows elsewhere in this journal, the Western, and particularly American banks, are exercising growing economic power on an international scale. Once again, the banks have a lead over sections of industry; much of industry is still nationally based; the banks are able to exploit the existence of a world market to deploy resources on an international scale, to move funds across national frontiers and back again, leaving national governments helpless and bemused.

The result is that even the biggest capitalisms are not self-contained entities, only relating to each other externally. They are not monads without windows. They are more like sieves – and the more the national state plugs up one hole, the more other holes appear.

National capital is not homogeneous. It is made up of discrete, although interlinked parts, each with its own relations to external capital. Indeed, the merger of the national state with capital can, in extreme cases, amount to little more than the merger of the state with one section of capital (complete with its own external links) as opposed to others – or even the internal disintegration of the national state into different agencies, each tied in with a different sector of national and foreign capital.

When you talk about the smaller national capitalisms (and virtually every capitalism is small when compared to the three or four giants) then you are talking about capitals which are as much disintegrated as integrated by the trend of development. It is not lack of patriotism that has caused the capitalist classes in relatively advanced countries like Argentina or Spain to abandon the dream of national capitalism for new integration with the multinationals and the international (i.e., American) banks in the advanced industries. Only the multinationals can marshal the techniques and the capital necessary for participation in these industries. But once entangled in this way, the national capital has lost its independence in vital areas.

It is this which explains another interesting phenomenon, hardly present in Kidron’s overview. The pressure for economic reform in the Eastern bloc (where, pace Kidron, there is a significant difference with the West – the state overrode the individual capitals many years ago) is in part a pressure to decentralise the national capital – so as to permit its components to find a route to the international mobilisation of resources needed for technological efficiency and modernisation by collaboration with sections of Western capital (loans, foreign investment, etc.)

What is lacking in Mike’s analysis is the old concept of uneven and combined development. He smoothes out the complexity of the world economy into a abstract, homogenised schematism that omits the dynamics of many developments. East and West.

Marx’s Capital and the permanent arms economy

THE SAME tendency is present in Mike’s arguments against the theory of the permanent arms economy, which he himself helped pioneer as an analysis of the post-war boom.

What he argues is this. Our basic mistake was that ‘we were working with a model of private capitalism in a period of consolidating state capitalism’. We did so, because we simply followed Marx’s example in Capital, which assumed ‘the continued, though declining existence, of non-capitalist modes of production. In such a system the tendency is for productive spending or accumulation to be undertaken by capitals, and waste, albeit necessary, spending to be undertaken by the non-capitalist society, either directly or through the state’.


‘in the pure model of state capitalism non-capitalist modes of production do not exist; in it, non-productive expenditure essential to the system has to be borne by capitals directly ... It is no longer reasonable to treat a transfer of resources from ... (the productive to the non-productive sector – CH) as a diminution in surplus; such a transfer needs to be treated as an increase in constant capital, which amounts to saying that capital’s value-structure (the organic composition of capital in the era of private capitalism) becomes heavier (rises) and the rate of growth of the system (the rate of profit) falls.’

In other words, in a state capitalist system, where all expenditures, productive or non-productive are undertaken by capital, the diversion of surplus-value to waste production in the arms industry does not, as we had believed, slow down the rate of accumulation and thus offset the tendency of the rate of profit to fall; on the contrary, it will simply add to the problems of the system by increasing the total capital relative to the workforce and causing the rate of profit to fall.

In order to show why this argument is wrong, it is worth starting with Capital. Contrary to Mike’s claim, Marx does not assume that all unproductive expenditure is undertaken by the non-capitalist sector. In Volume II of Capital Marx distinguishes between productive capital on the one hand and commodity-and money-capital on the other. The basis for the distinction is that productive capital is invested in the process of production itself and results in the creation of surplus-value; money- and commodity-capital, by ensuring the circulation of capital, perform tasks that are necessary for the reproduction of capital; however, they do not add to the total surplus-value. The profits of these capitalists in these sectors and the wages of the workers they employ are claims on the surplus-value created elsewhere, in the process of production.

Capital invested in waste production in the arms industries is analogous to money and commodity capital. The main difference is that workers in these industries produce commodities; they create value and surplus-value. However, these commodities are not consumed by workers or used in further production. A Chieftain tank will sit somewhere in central Germany for a few years until it becomes obsolescent and is replaced by a new generation tank. It is as if a large portion of the total output has been destroyed once produced. Yet the workers and capitalists in the arms sector bring their claims onto the market for a share of the goods produced in the other, productive sectors of the economy – consumer goods, new plant and equipment, etc. It is in this sense that capital in the arms industry is unproductive – it does not add to the total number of commodities embodying value and surplus-value on the market. Like commodity-and money capital it represents a claim on the total surplus-value produced elsewhere.

Now capital invested in arms like money- and commodity-capital, has two aspects. On the one hand, it increases the total level of investment in society. On the other hand, it slows down the rate of accumulation of productive capital. When Mike says of investment in the arms industry, ‘such expenditure must work towards stagnation’, he is concentrating on the first aspect while ignoring the second.

It is true that arms expenditure, by retarding the rate of accumulation, also slows down the rate of growth of the system. It is a fact that not only in the 1970s, but in the 1940s, 1950s and 1960s, the expansion of the system was not as fast as it had been during the booms of pre-war capitalism.

But, far from being a disadvantage to the system this was, to a certain extent, an advantage. The central problem for the capitalist system is the over-accumulation of productive capital. Competition between the individual capitals encourages them to increase their investment in means of production (plant and equipment) faster than the growth of the source of surplus-value (labour-power) in order to undercut each other’s prices.

Investment in the arms industry has the effect of slowing down the rate of accumulation of productive capital, and so offsets the tendency of the organic composition of capital (the value-ratio of means of production to labour-power) to rise and of the rate of profit to fall. Surplus-value that would otherwise become productive capital is diverted into the production of commodities which, from the point of view of the system as a whole, are destroyed. [1]

It was this that produced the most marked feature of the post-war period – not a rate of growth higher than ever before in capitalist history, but the ability to sustain a rather lower rate of growth/or a much greater length of time. There were booms, but not, until the 1970s, real slumps.

There is a valid criticism of this argument which Mike may be trying to make. He could argue that, while the permanent arms economy explains the lack of crises and the slow rise in the organic composition of capital after the war, other factors need to be invoked to account for the extent of the boom in the 1950s and 1960s. He might be right – but this would not invalidate the theory of the permanent arms economy.

One could put the argument another way. Every national capital in the modern world is two dimensional: it relates to other capitals not just through economic competition, through the competitive drive to jack up productivity and output faster than its rivals, so as to outsell them, but also through the development and production of means of destruction that enables it to defend itself against other capitals and perhaps to absorb them. Each national capital competes both economically and militarily. [2]

What is lacking from Mike’s article is any sense of how the two dimensions of military and economic competition conflict. So for him the crisis is primarily one of stagnation caused by growing waste production arising from the unproductive employment of capital. The result is that he omits a very important aspect of the crisis – that it is a classical crisis of over-accumulation.

The capital necessary to undertake new, large-scale investments is available on a world scale. However, there is no guarantee that if the capital were invested it would bring an adequate return. Throughout the Western capitalist bloc investment is at very low levels – not because of the lack of capital, but because of the lack of any guarantee that investment will be profitable. [3]

Even in the Eastern bloc, (which fits Mike’s picture of fully integrated state capitalism best), we see the beginnings of a crisis of over-accumulation. The rulers of these countries want to invest on a scale dictated by the pressures of world competition. The problem they face is that they cannot guarantee a return to their investments, once interest has been paid to the Western bankers and the demands of rising workers’ militancy has been bought off. Rather than risk a loss on some of their key investments, they may prefer to postpone them – even if the result is a recession and a loss of potential production.

The world crisis combines both stagnation produced by waste production and recession produced by over-accumulation.

We can see here how the two dimensions of military and economic competition contradict each other today. An increased level in military spending would permit investable funds to find an outlet in non-productive investments and would end the recession. But it would do so by putting a strain on the resources available for the civilian economy (as the last upsurge in military expenditure during the Vietnam war did) and produce further inflationary pressures. If, as is likely, the increased spending took place within certain national capitals but not others, the former would provide increased markets for any rivals who would be left with greater resources for economic competition. The result would be a competitive disadvantage for the big arms spenders, producing pressures for them to cut back their arms spending again.

By contrast, a reduction in arms spending would release investable sums for the rest of the economy. In the right circumstances it might even do so in such a way as to create a short-lived investment boom. But this would simply lead to the over-accumulation of capital, to the rising organic composition of capital, to increased internationalisation of production, and to a further crisis of profitability. Growth rates would rise, but so would inflation and the general instability of the system.

Why labour these points? Because Mike’s claim that ‘it is hard to sustain the view that it was the permanent arms economy that fuelled the long boom’ plays into the hands of those like Ernest Mandel who argue that the 25-year boom after the war was an accident of history – the product of a fortuitous rationalisation of capitalism and increased rate of exploitation of workers, along with a co-incidental ‘wave of innovations’. The return of crises in the 1970s is equally miraculous. For all they tell us, another accident may permit capitalism to resume its upward spiral. While the thrust of Mike’s argument is opposed to this empiricist reformism, his conclusions can play into their hands. [4]

Implications for practice

BUT IF Mike’s theory leaves the door open for a brand of reformism, his own inclination seems to be towards blatant ultra-leftism.

‘In the private capitalist system workers safeguarded a modicum of independence and strength in their relations with each capital by forming unions that spanned several capitals ... Within each state capital, workers newly brought into large employing units do join trade union type organisations, only to find that the organisations face their members on behalf of the capital rather than the other way round.’

So what else is new? Of course, trade union leaders try to use the unions to forward their own role as a bureaucratic layer seeking respectability and privilege within the system. But this nothing new or specific to state capitalism. It is virtually as old as the trade unions themselves. Kidron invites us to indulge in nostalgia about a golden past when trade unions played the ‘role of independent representatives of working-class interests’. But it looked rather different to those who lived in the good old days. The Webbs (of all people) described at the end of the 19th century how the trade union leaders would identify themselves more with the employers than with workers. Daniel de Leon called them ‘labour lieutenants of capital’. Anything Jones or Scanlon could do, Clynes, Thomas or Bevin could do better.

Kidron treats as if it were a new development a feature inherent in trade unionism under capitalism – the tendency for there to emerge within the trade unions a conservative bureaucracy of full-time officials which, while it bases itself upon the workers’ movement, represents the pressure of the bourgeoisie upon that movement.

If Mike stopped there it would be bad enough. But he goes on to say that

‘the trade unions as we know them increasingly reflect the interests of a privileged sector of the working class – the natives, male-dominated, skilled, white manual workers who ... use them to buttress their own relative position within the larger, more diverse working class of state capitalism.’

Where has Mike been for the last few years? Has he not noticed the phenomenal growth of public sector unions like NUPE, a high proportion of whose members are women and black? You would hardly think that we were living through a period in which there has been an expansion of militant trade unionism into previously unorganised or only half-organised sectors of lower paid workers, many of them black (blacks, despite Kidron, have a higher than average membership of trade unions) and women – pulling the whole focus of the trade union movement away from traditional craft unions to what are in effect industrial unions or ‘general unions’ (even if, like the AUEW and the EETPU, their leaders try to treat them like craft organisations).

In any case, what is the mechanism that enables the unions to extract privileges for ‘the elite of the trade union world’? Over the last few years trade union bureaucrats like Scanlon, Jones and Chapple have been trying to devise such a mechanism in order to avoid a struggle over their members’ living standards. They have failed so far.

The crisis leaves very little room for manoeuvre open to the trade union bureacracy. Any substantial concessions it obtains for any substantial section of workers threaten to deepen the crisis of the national capital within which the bureaucracy works.

For things to be different, there would have to be a mechanism that enabled some sections of workers to live off the exploitation of others. A number of would-be theorists have attempted to show that such a mechanism exists what they call ‘unequal exchange’. Mike has produced the most persuasive critique of this position – surely he cannot be reverting to that position now?

What Mike is pointing to is not a mechanism, but a vain hope of the trade union bureaucracy’s. Every section of the bureaucracy wants to avoid confrontation by finding the escape clause that will marginally protect the workers it claims to represent. Those who represent the traditional core of the working class (Mike’s ‘native, male-dominated, skilled, white manual workers’) do speak of differentials, productivity deals, incentive schemes, etc. But they have not succeeded in finding the cash to buy off their members. The long-term trend over the last 100 years has been for differentials to decline. A few months ago Hugh Scanlon was shouted down by 3,000 white, male, skilled toolroom workers because he could not deliver a single penny.

The bureaucrats representing these sections have also tried to buy time by offering to trade acquiescence in the cuts in public spending in exchange for greater leeway on wages – a policy which, if successful, would mean economic advantages for industrial workers at the expense of public sector workers. But it is not a policy that can be said to be in the interests of the industrial workers themselves (as Mike seems to imply) since they benefit from the social services provided by hospital workers, teachers, etc. That is why unity of trade unionists in industry with those in the social services is no idle dream.

There are obstacles to this unity, above all the divisive, class collaborationist policies of the bureaucracy. However, we are far closer to this goal than we ever were in the days of ‘private capitalism’. The great moments of the first period of mass trade unionism, culminating in the general strike of 1926, left virtually untouched vast numbers of workers – not just white-collar workers, but also those in hospitals, hotels, cleansing departments, shops.

So what does Mike’s argument amount to? What underlies his vague harking back to the Marcusean positions of the 1960s, which counterposed the ‘privileged worker’ to the ‘revolutionary lumpenproletariat’ or even the ‘student-youth vanguard’?

There seems to be one argument of substance, although Mike does not bother to spell it out. The unions are nationally based organisations. Therefore they only organise the workers within the province of one capital (the national state capital). Their attempt to counterpose some rationality to the anarchy of capitalism becomes merely a demand for more power for the national state. They can counterpose no wider rationality, no demand that undermines the competition between national capitals, because to do so would involve transcending national boundaries.

The trouble with this argument is that it presupposes that we have already have a fully formed state capitalist world system. It is therefore open to the objections to this assumption which we have already made.

In a world where the trends towards statification and the internationalisation of production contradict as well as complement each other, the boundaries of union organisation are still wider than the boundaries of the majority of capitals (although narrower than the boundaries of others, particularly the multinations). The unions still provide a potential basis for workers’ unity in opposition to much of the anarchy and waste of the system.

The union bureaucrats certainly recognise this. In every major redundancy struggle they do their utmost to avoid raising the question of planning production even on a national scale. Instead, they prefer to persuade the workers involved to line up with the existing company against other firms, even where this means, as in the case of Chrysler, lining up with American multinational capital against British capital.

‘Occupy, nationalise, fight for the right to work’ is still a demand far too explosive for the bureaucrats to countenance it. It raises the question of overriding the particular sections of capital, their parasitism, their irrationality, their waste, in the interests of a nationally united workforce.

Of course, revolutionaries look beyond purely national solutions. Socialism in one country is still a reactionary Utopia. A struggle that ended merely in a ‘planned’ national state capitalism (the outcome advocated by Benn and the CP right wing) would not end the crisis. But a struggle that begins with the defence of workers’ organisations, based upon the existing traditions of union organisation, and which goes on to demand an end to the waste ‘and anarchy of the system, does not have to end there. Look at Portugal. Those who posed a state capitalist solution like Goncalves and the PCP were unable to defeat the entrenched private and multinational interests. Why? Because to do so they would have had to mobilise the workers in a struggle that would have gone beyond the limits of state capitalism.

In the circumstances, it is a cop-out to counterpose international political organisation to existing workers’ struggles. A revolutionary international will emerge from struggles which involve a fight by workers to control and use the forms of organisation they have looked to in the past – the trade unions. Indeed, in many countries the struggle takes the form of a battle for free trade unions – for example, in countries like Poland which most fully fit Kidron’s schema of fully integrated state capitalism.

Mike’s arguments are not as new as he would like us to think. In reaction to the treachery of the reformist trade union leaders during the first world war many revolutionaries concluded that the unions were no longer an arena for genuine workers’ struggle. Theirs was a cloudy ‘Council Communism’ which expected Soviets to supplant the trade unions miraculously, without any struggle by revolutionaries within the existing mass organisations of the class.

More recently, in the post-war period many ‘leftist’ theorists, often basing themselves on an analysis of global capitalism, have rejected trade union struggles for ‘wider’, ‘less economistic’, ‘spontaneous’ struggles. The strength ot the old ‘insights’ into the permanent arms economy, now abandoned by Kidron, was that it pointed to the limits of the possible incorporation of trade union struggles into the system.

Once these ‘insights’ are abandoned, it can be very arbitrary what replaces them. The advocates of wage controls inside the Communist Party would justify their stance with much the same distaste for the ‘principled irresponsibility towards the ends and means of the work given us’ on the part of ‘the elite of the trade union world’ as Mike displays. Of course, he would have nothing but contempt for the politics of the CP right, but then it is worth recalling the cautionary tale of Bukharin.

Bukharin was the first theorist to produce a model of global state capitalism. In doing so he provided very important insights into the dynamics of the system. But so abstract was the model, that it left optional the conclusions to be drawn from it. As a result, Bukharin had no difficulty moving from ‘Left Communism’ to the right wing of the Bolshevik party.


1. Of course, this will not do on its own as an explanation of why arms production rather than some other form of productive expenditure stabilised the system. One reason is the logic of the arms race – once one major capitalist power develops a new range of weapons the others must follow suit. See the attempts at the present time by the Russians and Americans to develop a first-strike capacity. Then there are the other features stressed by Kidron in the past – the logic of the arms race is not governed by the boom-slump cycle; arms spending can therefore maintain employment levels and demand for capital goods in times of recession; technological innovation in the military sphere has spin-off in civilian industries; the rate of profit in the arms industry is determined largely by government contracts on a cost-plus basis, rather than through the inflow and outflow of capital, so that the fact that capital in the arms sector has a higher than average composition does not bring down the general rate of profit.

2. Lenin and Bukharin were the first Marxist theorists to make this a central element in the analysis of capitalism during the first world war.

3. See Notes of the Month, International Socialism 94 and 98 on Western capitalism’s crisis of profitability.

4. I have concentrated on the main thrust of Mike’s argument, although there are a number of secondary points that lack of space forced us to ignore. But it is worth questioning Mike’s claim that the tendency is towards the abolition of the reserve army of labour. How does he explain the formation on an international scale of a pool of immigrant workers sucked into the Western capitalist countries during the booms many of whose services were dispensed with during the recession? In countries like Japan where immigrant labour is not readily available, capital makes do with seasonal workers drawn from the poor farmers and students.

Chris Harman Archive   |   ETOL Main Page

Last updated: 16.1.2008