David Yaffe

Economic Perspectives, the Programme and the
Permanent Arms Economy.

Source: David Yaffe: 'Economic Perspectives, the Programme and the Permanent Arms Economy.' , IS Internal Bulletin, January 1973.
Transcription/Markup: Steve Palmer
Copyleft: This document is in the public domain.
Notes: It goes without saying that the author's position has evolved and developed considerably since this article was first written. Mike Kidron's response 'For Every Prince there is a Princess' can be found here. See also Kidron's own 1977 rejection of the theory of the Permanent Arms Economy.

The National. Committee has presented for discussion at conference a new draft programme. If passed 'it will constitute the programmatic basis of IS' and of the revolutionary party if IS is 'the developing nucleus of the revolutionary party'(p2). Therefore it is our duty to critically examine whether the programme presented fulfils the tasks demanded of a programme of a revolutionary party.

The programme neither points to nor explains the dominant tendencies of capitalism in the present period. It, therefore, does not and cannot offer a programme of action and demands that bridge the gap between the immediate problems facing the working class and the socialist programme of revolution. Although 'it is not enough to have correct ideas' (p3) it is certainly necessary. It is precisely the rejection of the Marxian theory of crisis and the dogmatic insistence in holding to the theory of the Permanent Arms Economy (PAE}, now in its third version, that prevents the economic sections of the programme from offering any perspectives for the working class movement. It is this theoretical void in the programme that gives it its academic and confused character.

What are the dominant tendencies of the present period? They are the growing economic role of the State in capitalist countries, increasing centralisation and concentration of capital, growing unemployment, rising prices, increasing taxation and an enormous increase of trade end inter-country investment between advanced industrial countries. This latter point is the central feature of imperialism today, and yet it does not get a mention. Neither does the attempt of the capitalist countries to break into the East-European markets (and China) so that the significance of the Ostpolitik and the developments in the Soviet bloc in the recent period are not examined. All these tendencies should have a central piece in the programme of s revolutionary party, but one has to search, often in vain, for the briefest mention of even the most important of them. Space permits us to examine only one of these tendencies; the growing economic role of the State.

The growing economic role of the State in the economy is a dominant feature of 'late' capitalism. In Britain, the Tory government has been forced to increase State expenditure at a much faster rate than that planned by the Labour government. The recent announcement of enormous State expenditure plans for the nationalised industries should surely have been explicable in terms of the analysis within the programme. Had not U.C.S. and Rolls Royce already indicated such tendencies? Were not similar subsidies becoming a recurring feature in all capitalist economies, (shipbuilding) coal, steel, aircraft industries etc)? Yet the programme offers no analysis, but merely asserts:

'State capitalism is a partial negation of capitalism. Its widespread development is a proof of the general crisis of capitalism. So too is its indispensable economic role of of the state in the developed monopoly capitalist countries.' (G.11).

In another section the 'military-economic role of the State' (G7) is a compensating factor to 'a long run tendency for the rate of exploitation to rise and a long run tendency for the average rate of profit to decline'. What this means only those who state it can say.

The central questions remain unanswered and the central facts of the present period are ignored. Why is the economic role of the State indispensable? What is the significance of the immense growth in State expenditure and the reduction of arms expenditure both as a percentage of G.N.P. and of State expenditure? These questions were the starting-point of the Schmiede/Yaffe article 'State Expenditure and the Marxian Theory of Crisis' - a Marxist analysis of the general tendencies that we now observe. We wrote then (August 1971):

'To maintain a state of high employment indefinitely … the non-productive sector (State sector) must increase faster than total production.'

and we argued that the contradictions of capitalism have only a new expression:

'that continually the government will be 'forced' to intervene in the economy to 'save' the private economy, and yet the problems will continually get worse because of the contradictory nature of this intervention.'

Inflation and stagnation were the expression of growing state-induced non productive expenditure on the private market. All this was explained in the article. Central to our whole analysis was the stress on the need to raise the productivity of labour and increase the mass of profits. Increases in arms expenditure or other non-productive expenditure only reduces the mass of profits, being a drain on surplus-value and hence exacerbate the tendency of the rate of profit to fall (the opposite is asserted in the programme). Precisely because of this, capitalist governments will attempt to reduce them wherever possible. The figures for defence expenditures for a number of countries confirm this point.

1952 1960 1968 (% of GDP (factor. cost)).
UK. 10.5 7.0 6.5
USA. 14.5 9.0 10.0
Japan. - - - (negligible)
W.Germany 6.5 3.8 3.5
France. 8.0 6.4 4.5

In the case of social security payments (12.1% of public expenditure in 1951, 18.1% in 1970 in Britain) this reduction has not generally been possible. This is due to increasing unemployment over the period.

The increase in unemployment and inflation certainly does not have its explanation in a reduction of arms expenditure. To understand the problem we have to realise that:

'the progressive tendency of the general rate of profit to fall is … just an expression peculiar to the capitalist mode of production of the progressive development of the social productivity of labour', (Capital Vol III, p.209)

As the productivity of labour increases, the number of men employed by a given mass of means of production falls (more crudely, men per machine) that is, the number of men per unit of capital invested, falls. So that, unless investment increases sufficiently, the result will he unemployment - the same amount of investment as before employs less men. Consequently full employment requires a continual increase and expansion of profitable production (an increasing rate of accumulation). Unless the rate of exploitation, the mass of profits produced per man continually increases, there will be a slow-down in the rate of accumulation and therefore, unemployment. The tendency of the rate of profit to fall is the expression of this contradictory process. On the one hand there is a reduction of the number of men working with a given amount of capital as productivity increases. On the other hand there is the requirement to employ as many men as possible at a higher productivity of labour in order to obtain the maximum mass of profits and hence maintain profitability. So long as the productivity of labour can be increased sufficiently and at the same time, production expand, there will be no unemployment, But it becomes increasingly difficult to progressively increase the productivity of labour, as we explain in our article. The result is a slow-down in the accumulation process and unemployment.

The State intervenes in the economy to take up the slack and reduce unemployment. This can only be a temporary measure as State expenditure is financed out of taxes and therefore out of profits already produced and such expenditure makes continued increases in the productivity of labour all the more essential. The result of non-profitable State expenditure is increasing taxation and inflation or rising prices. The State increases the money supply, increases deficit financing, and/or taxation (now about 42% of G.N.P. in Britain (44% in 1970) compared with about 31% in 1960) in order to finance its immediate expenditure. The effect of all this on the private market, as workers attempt to maintain their real wages and capitalists increase profits, is higher prices, in spite of unemployment and stagnation. Inflation con only be reduced by an overall increase in the productivity of labour and expansion of profitable production. Otherwise, as State expenditure increases in the: attempt to reduce unemployment and create a 'climate' for further 'private: investment, the result will be an even faster rate of inflation.

Having understood these central points it is clear why the State is now 'forced' to increase: nationalised industry spending in Britain. Most nationalised industries produce products that are the basic inputs for all industries. The cheaper these can be sold (the more productive those industries are) the less the costs (and higher the profits) of the main big users (usually large corporations). By rationalising these industries the State redistributes resources in the direction of the large corporations and in this way helps to increase the profitability of such Corporations. The pricing policies of the nationalised industries make sure that it is the big users that benefit, not the ordinary consumer. In the process of rationalisation, the state attempts to give directly a lead to private industry. The enormous reduction of the work force over recent years in all nationalised industries, in spite of the large expenditures involved, is the indication of this. Throwing 50,000 men out of work will be the result of the enormous expenditure plans in the steel industry (3,000 mill.) and similar reductions are considered necessary in the coal industry. The working class is made to pay for the problems inherent in capitalist production. The Industrial Relations Act, income policies, are the 'political' counterpart of this process. A 'disciplined' work-force and cooperative Trade Unions are considered essential if the rationalisation necessary for capitalism's survival are to he carried through. Also, many of the projects take years to carry out and 'instability' can seriously jeopardise the result and the ability to sell the products.

The merger movement, the concentration and centralisation of capital (often beyond national boundaries) is another expression of the imperative to raise the productivity of labour and to maintain and increase the share of the mass of profits produced. In Britain, the 100 largest manufacturing enterprises in 1900 produced 15% of net output. By 1970 the proportion had risen to 50%.

In such a context, on the basis of a Marxist analysis, the relevant demands that follow logically from the analysis have revolutionary implications. For example, 'work or full pay' poses the questions; who should benefit from increases in the productivity of labour? Why do such increases lead to redundancies and not to on overall reduction in the time necessary to work? This demand allows the alternative of planned production for use to be raised (a point hardly discussed in the draft programme). In making clear the role of the capitalist state the analysis combats illusions about the Industrial Relations Act and incomes policies. The demand for 'Independence of the T.U's, from the State' is immediately seen to be necessary. Price rises, clearly not due to workers attempts to increase their wages but following from the attempt of the capitalist state to maintain and preserve a system that has long outlived, its stay, must be fought using independent working-class organisations. The 'rising scale of wages regulated by housewives and TU committees' becomes a central demand. Such an analysis, in short, leads necessarily to a programme of action that has as its mainstay a Marxist understanding of present-day conditions.

Once again the PAE.

This version of the PAE differs from earlier ones in that a reduction of arms expenditure causes a fall in the rate of profit. (D. 10) and it is the reduction of arms expenditure in the previous decade that is the cause of the present crisis. In the last draft programme, it will be remembered, structural changes in the arms industry did not affect the rate of profit and the crisis was flue to 'decreasing effectiveness of arms expenditure'. That arms expenditure had no direct effect on unemployment in the USA can be seen from the following statistics. In 1945-8 defence spending in the USA dropped from over $80,000 mill. to about $12,000 mill. Throughout the period unemployment remained under 4% and was 3.0% in 1948. According to all versions of the PAE. there should have been a crisis! In 1954-5 there was a sharp decline in the rate of unemployment and the level of defence spending. In 1961-5 the unemployment rate fell from 6.7% in 1961 to 4.5% in 1965, or well in advance of the spurt in defence spending, The PAE as we have shown here and elsewhere, is theoretically false. Statistical evidence conflicts with its predictions and finally, the draft programme is a living example of its inadequacy.

David Yaffe.

Kilburn Branch. Dec. 1972.