IBM and the high-tech crisis

By Sam Marcy (December 12, 1991)

International Business Machines has for decades been regarded as the premier business corporation in the United States. It has often been referred to as the brightest star in the firmament of big business and high finance.

Such language wasn't invented by IBM's sales department. Its efficiency, product excellence and domination of the market have been regarded as almost an eternal category. For instance, Robert Sobel, a biographer and historian of big business corporations and the author of "IBM Versus Japan" (Stein & Day, 1986), wrote in that book just a few years ago:

"IBM is on everyone's list of the top half dozen or so best-managed corporations. To outsiders, it often appears as a monolith, a firm of clear-cut unity of purpose, led by individuals who rarely make missteps, and when they do, recover rapidly.

"Other firms in other industries," he continues, "age and become arthritic — U.S. Steel in basic metals, General Motors in automobiles, RCA in consumer electronics, and Xerox in copying machines come to mind — and concede ground to younger, more vigorous challengers. Not IBM, as its rivals and investors have come to know. On Wall Street, IBM is known as the one stock that has been the star of bull markets since the 1920s."

IBM an exception?

While others decay, this giant corporation, says Sobel, is "constantly engaged in the process of renewal, so that it appears vigorous, youthful and dynamic, even as its revenues approach the $50 billion level. During the past six years, IBM has invested over $15 billion on new facilities and equipment and $18 billion more on research and development. [Vice-president for Finance and Planning] Allan Krowe has indicated that in the second half of the 1980s upward of $56 billion more will be invested. `The pace of our capital investment is, if anything, accelerating.'<|>''

Sobel predicted a rosy future. "Most industry observers expect IBM to expand at a rate of approximately 15-20 percent per annum for the foreseeable future, an amazing performance comparable to seeing an elephant whiz by at 100 miles per hour. Yet the firm has done so in the past, and it would be unwise to expect less in the future."

The elephant crashes

And now, six years later, what has happened to this whizzing elephant? Its stock is plunging. It is eliminating jobs by the tens of thousands. And it is planning to virtually dismember its vast empire because it is unable to compete with some new rivals.

Contrary to Sobel's prognosis, IBM is suffering from the same arthritic degeneration as U.S. Steel (now USX), General Motors, RCA and the rest of the industrial corporations whose decline began several decades ago.

The company's real situation came to light on Nov. 26, when it announced it would eliminate another 20,000 jobs next year. This continues a downward trend that began in 1985. While two decades ago IBM employed somewhere around 200,000 workers worldwide, its payroll peaked in 1985 at 405,535. It dropped to 403,508 in 1986. By 1990, IBM's global payroll was down to around 373,000, according to its annual report.

And now it is to shrink further. This debunks the much-touted boast that IBM never has layoffs, just "voluntary" departures. The tens of thousands of job eliminations that began in 1988 have by no means run their course.

The company has also revealed a restructuring plan whereby it is to become a federation of loosely affiliated subsidiaries. Instead of being a battleship, it hopes to break down into a group of quick-moving destroyers. Such a move would have been unthinkable a few years ago.

IBM's fortunes have hinged on the fact that it had a virtual monopoly on marketing multimillion-dollar mainframe computers, which were bought by the largest corporations and the government. But these sales have been declining in absolute terms. Mainframes are rapidly being eclipsed by speedier technologies based on fingernail-sized microprocessor chips. IBM has never had the same kind of absolute control over the personal computer market that it had in mainframes.

Furthermore, IBM is late in entering what is now the fastest growth area of the computer business — scientific and engineering work stations and notebook computers. This is where the computer industry has grown the most in the last two years, and IBM is still a small player in both.

More technology, lower profits

IBM Chair John F. Akers gave several reasons for the company's new orientation. First, the industry's growth rate fell from double digits to zero this year, he said. This is all too true. It shows that high-tech is subject to the same laws of capitalist development as other industries. The high-tech companies, including a super-giant like IBM, are not immune to these laws, or to the general economic crisis they have produced.

Second, Akers said that "technology changes are reducing the need for human and physical capacity in manufacturing." This has been true of capitalist industry, and of IBM, since the beginning. Of course, greater productivity of labor should be a progressive social factor, freeing people from drudgery. However, as capitalism reduces the need for human labor, it creates what Marx called the reserve army of the unemployed.

Nevertheless, in the past IBM employment kept rising anyway despite improvements in technology. The company survived and grew despite the cyclical crises of capitalism. Akers doesn't explain why things are different now.

One of the most important laws of capitalist development discovered by Karl Marx is that the growth of fixed capital — plant, equipment, technology, etc. — is at the expense of variable capital — human labor power. But it is human labor, not the fixed capital, that produces surplus value from which profits are derived. So reducing the percentage of variable capital, or labor power, inevitably results in a lower rate of profit.

We thus find that "IBM's profits peaked in 1984 at $6.5 billion. Since then the company has performed unevenly. But the scope of the crisis was underscored this year in the third quarter, when IBM's profits at $172 million were only marginally more than those of the Microsoft Corporation at $144 million, even though IBM is more than 40 times Microsoft's size." (New York Times, Nov. 27)

Such a situation is utterly untenable under the capitalist system.

More than cyclical

But isn't IBM's decline simply the result of the current economic crisis? Some say the crisis is sure to be liquidated and followed by an upward movement that will restore IBM to its earlier preeminence. Moreover, doesn't the current economic crisis also affect its rivals?

To be sure, the current capitalist crisis is taking its toll all over. In fact, the crisis is becoming deeper. And it's spreading to Europe and Japan.

Nonetheless, the crisis afflicting IBM is also of a special character.

Sobel said that firms such as U.S. Steel, GM, RCA and Xerox suffer from age and arthritis. But this doesn't exactly describe the nature of their illness.

Each of these companies in its prime was also continually modernizing, restructuring, and introducing new technologies, and at the same time hiring more and more workers and producing more. Of course, the productivity of labor increased. But there was such an expansion of the industry that more, not fewer, workers were employed. That was a sign of genuine growth.

When Ford introduced mass production via the assembly line, which included many technological changes, the auto company nevertheless continued to hire more and more workers. Production zoomed. As is well known, its Model T not only outsold but was cheaper than all others.

This was the pattern in the previous epoch of capitalist development. Arthritis in these industries set in when, with the introduction of new technologies, workers were displaced en masse instead of being hired as production expanded. At the same time, however, new high-tech industries were absorbing some of the workers displaced by the older industries. Now the disease has spread to high tech, an area hitherto considered immune.

However, the current crisis in high tech — not just IBM but its competitors as well — demonstrates something more. We are seeing the maturing of a much deeper crisis brought about by a contradiction of capitalism that is magnified a millionfold by high technology.

The productive forces — that is, technology and the means of production — have outgrown the existing social relations based on private property. Take the field of computers. Production of the tiniest microchip is made possible through the accumulated collective labor of hundreds of millions of workers. But this collective process of production, involving tens of millions in a coordinated and complex interchange, is in sharp antagonism to the private ownership of the means of production by what amounts to a handful of multi-millionaires and billionaires. This minuscule class controls the vital arteries of economic and political life.

It's not true that technology itself has grown to such dizzying heights that it cannot be controlled or managed. It can be. What stands in the way is private ownership and the struggle for super-profits, which make the productive forces in capitalist society unmanageable and lead to periodic crises. These become ever more destructive and are temporarily diverted only by imperialist wars.

Contrast with crisis in USSR

How does this compare with the crisis in the USSR? Ever since the Bolshevik Revolution, the USSR has been in a constant economic struggle. But it has not been due to the unmanageable growth of productive forces that have outgrown the forms of appropriation. Just the opposite is true. Because of the backwardness of czarist Russia, the productive forces in the USSR have been too meager, too small, too undeveloped to take on a fully socialist character.

This is well understood by the imperialist countries. With this in mind they have an agreement among themselves virtually prohibiting the sale of high technology to the USSR. And even today, after all the Gorbachev administration's efforts to accommodate the USSR to the demands of the imperialists, the latter have refused to lift the ban.





Last updated: 19 February 2018