Issue 224 of SOCIALIST REVIEW Published November 1998 Copyright © Socialist Review

Overcapacity, market saturation, global glut... all these amount to a description of what Marx called 'overproduction'. He did not mean that, as so many mainstream economic commentators state, there are simply 'too many' cars or computer chips produced. Instead he pointed out that overproduction within capitalism represented the existence of a surplus of commodities that still have a use, but can't be sold at a profit.

Overproduction happens because capitalists are, in Marx's words, a 'band of warring brothers'. The system into which they are locked means that although they have interests in common--the need to raise the exploitation of workers for example--they are all in competition with one another. Each is out to maximise profits at the expense of the rest. Production in the system is not collectively planned or co-ordinated by the manufacturers to produce exactly the number of products for which there is a market. Each tries to produce enough goods to capture the whole market, or as much of it as possible, resulting in markets becoming 'flooded' with goods The price drops until it doesn't even cover costs, let alone make a profit, leading to the collapse of some of the most vulnerable firms.

For instance, say there are three fridge manufacturers. They range in size from the largest, Arctic, which provides for 50 percent of the current market, Bitter which supplies 30 percent and the smallest, Cold, which produces 20 percent. Between them they have the market sewn up but because of the inherent pressures of competition in the system the survival of each depends on its ability to increase its market share and to steal customers from the others. So if projections indicate a potential increase in the market for fridges of say 100 percent, the managing directors of these companies do not get together and allocate the extra production to each according to its current capacity to produce. Instead each attempts to expand its production to grab the whole extra 100 percent or as much of the market as is possible for themselves.

So the Arctic factory employs more workers, lengthens shifts and invests in new machinery. It can't quite produce enough to supply the full increase but it does produce enough to supply 70 percent of the new market. Bitter follows suit but, despite pulling out all the stops, it can only increase its production to provide for an extra 50 percent. Cold thinks this is its chance to compete with the leading companies so sets up bank loans to finance a massive new factory with state of the art production techniques and increases production to provide for 30 percent of the increased market.

The result? Although no individual company produces enough extra fridges to capture the whole of the 100 percent increase in the market, between them they have produced 150 percent more fridges--50 percent more than the market needed. In an attempt to get rid of their fridges each company is forced to lower prices to undercut the other but each is still left with warehouses full of fridges. Replace fridges with microchips in this example and you have a picture of the process behind some of the elements of the current crisis. The point is that it is not the specifics of the particular commodity or industry which important. The tendency for overproduction to occur is built into the system because of the blind competition between firms.

The fact that a commodity's price collapses and goods remain unsold is crippling for the capitalist, for it is in the unsold goods that his profits lie. Marx showed that human labour was the source of all value. Without the intervention of humans, raw materials--whether it be coal in the ground, forests of trees or fields of wheat--had no value in that they could be neither used nor exchanged in their natural state. Once mined, cut down or harvested by human labour then all these materials are transformed into commodities with both a use and an exchange value.

This unique capacity of humans to work on their environment in such a way is, under capitalism, 'bought' by bosses when they pay workers a wage to work. But workers are not properly rewarded for the value that their labour creates, they are merely paid for their ability to labour. As the value of commodities is measured by the amount of human labour needed to produce them, so the capacity to labour, in Marx's words 'labour power', is measured by the amount of labour needed to reproduce it. So a worker's wage represents crudely the amount needed to enable him or her to eat, clothe and find shelter and turn up to work refreshed each day. Therefore a worker is creating value each day at work but only receives a fraction of the value created. The surplus is taken by the boss as his profit.

But back to the unsold goods. The surplus value that the workforce has created lies within these goods and can only be realised if they are bought, or in Marxist terms if they are exchanged for what has become the common currency-- money. While they are lying unsold the boss cannot get his hands on the surplus value his workers have created and so loses all his potential profits. Without the crucial process of exchange the surplus value within commodities, cannot be realised. Without profits many manufacturers go to the wall.

It's important for socialists to constantly point out that the 'use value'--the usefulness of any commodity--is irrelevant to the bosses. It doesn't matter to them that there are millions of people who could use the 'extra' microchips, that some hospitals survive on hopelessly out of date technology, that the lives of many disabled people would be enhanced by computer technology to enable them to communicate and so on. For the bosses a commodity is only a means to an end the increased accumulation of capital.

Yet we are constantly told by economic pundits that if only governments wouldn't interfere with the market by imposing controls and suchlike that the market would find its own natural balance. Supply of goods would then tend to match demand for goods, profits would be made, workers would be employed and some sort of equilibrium would be reached. Marx showed that such a view was at best a fantasy and at worst it led to the pursuit of economic balance at a high human cost. For, left to its own devices, the market, whose very existence depends on the exploitation of workers to create profits, can have devastating social effects on the lives of millions of ordinary people.

In contrast the concept of the market as a self adjusting entity benign and independent, intervening in the economy in a conscious way is a common one. So Tony Blair talks of bringing the market into areas of society such as education as if the rules of 'the market' were a rational alternative to irrational state intervention. Yet there is no 'hidden hand' guiding the economy to equilibrium. The market is nothing more than the sum total of numerous transactions, the buying and selling of labour, capital and commodities, as different sections of capital pursue profit.

It is precisely because competition between rival capitals breeds anarchy in the system that supply and demand cannot he matched. Production takes place on the basis of predicted demand. By the time the extra commodities have gone on sale, present demand may be quite different to that projected, leading to either shortages or surpluses.

So the Brazilian car industry, which has experienced growth of an average 14 percent each year since 1991, has now seen sales drop by 17.1 percent in the first half of this year as a result of the crisis in south east Asia. It had been banking on average growth being sustained and had planned production to meet that demand. Now thousands of cars remain unsold. Economist Paul Ormerod claims in a recent article in the New Statesman that 'some really big consumer markets have come close to saturation. And the car industry is the biggest one of all...the proportion of households with a car is almost as high as it will ever get.' What he should have said is that supply has outstripped demand because there are less households who can afford a new car in the current climate, not because everyone who needs a car has one.

Since the recession of 1974-76 the whole concept of state intervention in the market to overcome such problems has taken a battering. Monetarism and the free market ruled and any sticky problems like recessions were blamed on mistaken policies or external factors. The sheer scale and speed of the economic crash in Russia and the collapse of those erstwhile models of rampaging capitalism in south east Asia has stunned world leaders and their financial advisers. Like rabbits caught in the glare of headlights they seem paralysed by the sight of their system spiralling out of control. Ruling classes across the globe are grappling for explanations and solutions.

Talk of creating more transparency in new market economies and curbing capital mobility do not even begin to address the, cataclysms faced by the economics in the Far East. Suddenly even the most ardent free marketeers who had boasted of the benefits of ever greater deregulation of markets are arguing that state intervention is the only way to slow down the collapse. So the ideas of Keynes have had some surprising advocates in recent weeks. As one financial columnist observed, 'There are no free marketeers in a bear market. When bankers face huge losses, they rise as one to sing The Red Flag and demand government welfare.'

Such is the desperation that the Economist magazine was cheering the idea from the Japanese government that they issue every citizen with a £130 gift token and give them Mondays off to go shopping although the boost to the economy would amount to only 0.7 of a percentage point. In their words, 'There is no better plan, and no better time to get the presses rolling.'

While even mainstream economists are suggesting that the whole basis of the capitalist system is in question, the G7 summit broke up last month with not a single proposal that even begins to address the still escalating crisis. In effect this is an admission by the capitalist class that they are helpless in the face of such wholesale economic turmoil. There is simply no way they can take control of the situation, the scale and depth of the crisis are too great.

Clinton's proposal of some sort of pre-emptive action in the shape of a new fund through which 'innocent' economies facing crisis could come to for help seems too little too late. But as yet there is no suggestion how such a venture would even be funded, let alone how economies would qualify for credit. IMF officials are already sounding nervous about such a plan as they see no way of holding such creditors to account. Part of their anxiety lies in the fact that the IMF itself is quickly running out of money, with the US stalling on its contribution, so even under current arrangements future bailouts for ailing economies cannot be guaranteed. Not that IMF intervention is a solution for anyone but the rich, for it never comes without a heavy price to pay, usually by the poor in the shape of enforced cuts in public spending and much needed welfare.

When socialists argue that economic planning is the alternative to this anarchy we are often told that attempts to try and plan production are neither desirable nor possible. Yet this denies the reality of the planning that already is a feature of the system. In manufacturing industries on the massive scale of Ford or VW which employ tens of thousands of workers, cars do not just run off the production line willy-nilly in whatever colours or designs that the managers decide each day. In fact by necessity the engineers and designers are already at work on the designs and even the colours of the cars we will drive in the 21st century. Prototypes will be tested and investment decisions about opening new factories or shutting down others in years to come will be made on the basis of detailed planning on projected figures of production for each model. The same is the case in everything from fashion to farming. Each individual company plans, but because they are competing with each other what is missing is any notion of planning across the system.

So when socialists are told that planning is impossible in the huge global system that is the modern world, we can retort that all the expertise and investment that goes into planning production to capture markets from other capitalists could be diverted to analysing the demand or need for particular commodities and gearing production to meet that need. In so doing the productive process itself would be transformed.

For under capitalism workers have no control over production. They are alienated from what they produce and have no stake in the system. Think how differently workers would feel about their daily labour if they made the decisions about what was needed, what would best benefit them and their community. Just as workers today will invest leisure time and much energy in their own projects, whether it be an allotment, an evening class or building a trade union, so generalised production could become labour that is not an alien activity, but one which gives pleasure and satisfaction.

The technology and infrastructures are currently in place to bring Coca-Cola to the remotest parts of the globe. Workers could decide instead to send medicines or essential foodstuffs. Factories now producing luxury cars might decide to switch to making ambulances and buses. Imagine if the builders that are currently constructing the white elephant that is the millennium dome could decide how best to use their skills and materials. The possibilities are endless. For the huge productive capacity of the system to be controlled collectively by those who both do the work and have most to gain from the process would unleash undreamed of potential.

In these circumstances nobody would benefit from producing anything but what was really needed. That's not to say that socialist planning would immediately be able to correctly plan production down to a pair of shoes, but the current waste of resources on the one hand and crying need of the very basics of survival by much of the world's population on the other could be very quickly abolished for ever.