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The state and capitalism todayIssue:
Posted: 25 Septembe r 06
Chris Harman
From International Socialism,. 2(51): 357, Summer
1991
The relation between capital and the state is central to an
understanding of developments in the world today. It is thrown
up in a whole series of apparently different discussio ns: on the
future for the Third World, on the relations betwe en the
superpowers in the aftermath of the Cold War. on the prospectsfor succ essful econo mic restru cturing in the USSR and Eastern
Europe, on the repeated rows within the Tory gov ernment over
European integration, on the significance o f the United States
war against Iraq. These issues have c reate d conside rable deb ate
on the left. They hav e been the subject of an intermittent
discussion among co ntributors to this journal for a dec ade and a
half, and among the wider left there has been much gre ater
confusion.1
The state as simply a superstructure
The most common v iew of the capitalist state among Marxists is
to see it simply as a superstructure, as external to the capitalist
economic system. Capitalism, in this view, consists in the pursuit
of profits by firms (or, more ac curately speaking, the self
expansion of capitals) without regard to where they are based
geographically . The state, by c ontrast, is a geographically based
political entity, whose bo undaries cut acro ss the operations of
the individual capitals.
The state may be a structure that developed historically to
prov ide the po litical prerequisites for c apitalist productionto
protect c apitalist property, to po lice the dealings of different
members of the ruling class with each o ther, to prov ide certain
services which are essential for the repro duction of the system,
and to carry thro ugh such reforms as are necessary to make
other sections o f society accept c apitalist rulebut it is not to be
identified with the system itself.
This view of the state claims to be based on the Communist
Manifesto: The ex ecutive of the modern state is but a c ommittee
for managing the common affairs of the whole bourgeoisie. But
its origins do not lie in Marx himself so muc h as in the classical
economists who preceded him: in the Communist Manifesto
Marx simply takes their insistence on the need for a minimalist,
nightwatchman state and draws out its class character.
Nevertheless it is the view that is to be found in most modern
academic Marxism. So, for instance, it was to be found on both
sides of the debate which took place in New Left Review between
Ralph Miliband and Nicos Poulantzas.2 Miliband argued what
has been called the instrumental vie w of the state: it was tied to
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the capitalist class because its leading personnel came from the
same milieu as the owners of priv ate capital.3
Poulantzas argued that this was to see a merely contingent
relationship between the state and capitalism, to see the states
character as depending simply on who manned its top
structures. He argued what has been called the functional view:
the state has to fulfil the needs of the society of which it is part;
since this is a capitalist society it is necessarily a capitalist state.
The state is, as Poulantzas puts it, a condensate o f class forces,
and the forces it condenses are capitalist forces.4
Despite their apparent opposition to each other, both Milibands
and Poulantzas views can lead to the co nclusion that the
capitalist state can be used to r eform capitalist society . If it is the
character of its personnel that guarantees the capitalist nature of
the state, then changing the personnel could change the
character o f the state, allowing it to be used for soc ialist
purposes. If the state is a function of the soc iety o f which it is
part, then if that society is racked by deep class struggles, these
would find the ir expression thr ough the state. The c ondensate of
class forces co uld express bo th ruling class and working class
pressureswhich perhaps explains why Poulantzas could mov e
from Maoism to Eurocommunism without any fundamental
change in his theoretical framework.
More recently, another v ariant of the view of the state as
external to capital has emerged on the left. Within academic
Marxism there is a growing tendency for people to counterpose
the capitalist system, as a system based upon the drive o f firms
to ac cumulate, to the sy stem of states within which it has been
enmeshed historically.5 In a few cases this has led to the
conclusion that the great wars of the present century hav e not
resulted from any drive o f capitalism towards war, but rather
from the clash of ancien regime empires which capitalist
development is now in the course of dismantling.6
Nigel Harris comes from a very different traditiona
revo lutionary traditionto that of ac ademic Marxism. His
writings have alway s ex pressed an unbridled hatred fo r the state
and complete co ntempt for those who believe it is possible to
reform c apitalism. But in his attempt lo come lo terms with the
internationalisation of capital ov er the last 20 years he has
turned to an acco unt of the state which belongs to the stale
simply as superstructure school.
He argues that the interests of capital are incre asingly
international interests, not bounded by any national borders.
Each individual capital grew up within a particular nation states,
but can now operate within v irtually any state, bending it to its
will . The part icular state was a nec essary instrument at o ne stage
of capitalist dev elopmenta superstructure once needed by
capital acc umulationbut is no longer. Capitalism is led to
challenge the state which has acco mpanied its growth in the
past, to act against the arbitrary and corrupt abso lutist stale, tomove to the completion of the bourgeois revo lution in a way
reminiscent of 1848.7
Nigel does not mean that the state simply withers away. Far from
it. The bureaucratic structures of the state remain intact. They
have interests of their own to preserv e, interests that are tied to
a particular national geographic area, interests in maintaining
class peace, interests in attracting capital in competition with
other states, interests in building up military prowess. And so
the modern world is characterised not just by an increasing
volume of trad e in goo ds and c apital, b ut by state boundaries
which impede that trade in a manne r which is, from a c apitalist
point of view, irrational. There is bread, but there are also
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guns.
The state as capital
While mo st o f the left has seen the state and c apital as oppo sed,
there has been a minority tradition that equates the state with
capital. Its intellectu al origins go bac k to the insights of Lenin
and Bukharin in their boo ks on imperialism written at the he ight
of the First World War.8 They spoke o f the state merging with
capital, of state monopoly capitalism, or simply of state
capitalism. It was these insights that Tony Cliff used when he
developed the only coherent Marxist analysis of Stalins Russia9and various ex -colonial countries.10 But Mike Kidron went
further and extended the insights into what he c laimed was a
complete theory of ageing capitalism.11 In Kidrons acco unt
individual states and individual capitals beco me c ompletely
congruent with each other: every state acts at the behest of a set
of nationally based capitals, and every significant capital is
incorporated in a particular state. If y ou talk about the interests
of British capitalism, y ou are talking about the intere sts of the
British state; if you talk about the British state, you are talking
about the operations of British capitalism. This does not mean
that there are no exc eptions ruleno c apitals that temporarily
escape from the control o f national states or no national states
that temporarily act against the interests of nationally based
capitals. But these exc eptions, for Kidron, are a hangover fromthe past, relics whic h will disappear with the further
development of the sy stem. Indeed, the logic is for all elements
of the superstructure, even trade unions, to bec ome simple
expressions of the drive of national capital to co mpete with its
foreign rivals. Certain academic Marxists hold views which in
some ways parallel Kidrons. These belong to the logic of capital
or the state as capital schools. For them, the behav iour of the
state is determined by the logic o f capital accumulation,
although they tend to see it as the logic o f private capital within
the individual state rather than of a state capital in competition
with other state capitals.12
Problems with both views
There are problems of analysis and implications for political
practice assoc iated with both sets of v iews. If the state is simply
a superstructure, then it is possible to contend that the problems
that arise in the political sphere and tho se that arise
economically are separate and distinct from each o ther. The
struggle against the police or against racism then has nothing to
do with the class struggle; the blow against the boss ceases to be
a blow against the bomb.1
This was the logic which led Bernstein and Kautsky to drop their
differenc es and to claim that it was possible to fight militarism
during the First World War without t urning the imperialist war
into a civ il war. It is the same logic which led Edward Thompson
in the mid-1980s to talk about military competition betweenstates as exterminism, which had nothing to do with old style
capitalism and which could be fought by men and women o f
good will from all classes.
The implications of the vie w of the state and capital as merging
completely are just as great.The forms o f oppression maintained
by the state are see n as flo wing direc tly from the ac cumulation
needs of capital. There c an be no clash between them. Sexual
oppression, racial discrimination, the structure of the family,
bur eaucr atic hierar chies, po litical par ties, even natio nal trade
union organisation, are all products of the logic of the state as
capital.14 The consequence of such a view is to dro p any
distinction between fundamental social clashes which challenge
the very basis of capitalist rule and less fundamental ones that
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can be c ontained by reforms to the existing institutional
structur e. The result is either ultra-leftist spontaneismas with
Lotta Continua and then the Italian autonomists in their heyday
in which the revolution is seen as imminent in each and every
struggle, since ev ery form of oppression flows from the
immediate require ments of capital acc umulation. Or it is a
variant o f refo rmism, which sees the structures e sse ntial to
capital as being undermined by piecemeal rejection o f each
particular oppression. The strategic aim beco mes the
establishment of rainbow coalition alliances between various
autonomous mov ements, each seen as just as important as any
other.15The origin of the national state and national capital
Y ou cannot correc tly grasp the relationship be tween the state
and capital today unless yo u reject bo th the simple
superstructure and the state as capital positions. Instead, y ou
have to understand the co ncrete way s in which capitals and the
capitalist state necessarily interact in the course of historical
development. Existing national states did arise out of the
developing capitalist organisation of pro duction, as
superstructures. But they feed back into that organisation,
helping to determine its tempo and direction.
Marx pointed out in Volume Two of Capital that capital appears
in three formsas productive capital, as commodity capital and
as money capital. Every process o f capital accumulation
involves repeated changes from one form to the other: moneycapital is used to buy means of production, raw materials and
labour power; these are put together in the production pro cess
to turn out co mmodities; these commodities are then exchanged
for money; this money is then used to buy more means of
production, raw materials and labour power, and so on.
The forms of capital are continually interacting as one changes
into the other, so that at any giv en point in time some of the total
capital will take the form of means of production, some of
commodities waiting to be sold, and some of money . But there
can also be a partial separation of these three different forms.
The organisation of direct production, the selling of
commodities and the supply of finance can devo lve upon
different gro ups of capitalists.
It is this separation which c reates the illusion that capital is anobject that grows in size by some magical proc ess. For it does for
those capitalists who simply buy and sell commodities, and for
those capitalists who simply adv ance money and reap interest
payments in return.
Each of these forms of capital has had, historic ally, a different
relationship to the body which has a monopoly of political
v iolence in any partic ular geo graphic loc alitythe state. Mone y
capital can (or at least could, in its classical form, when gold was
the main means of payment) operate regardless of state
structures. It co uld flourish, as Marx noted, long before the
development o f capitalism generally . Money lenders in one part
of the world would make loans to bo rrowers in other parts o f the
world, re ly ing o n the recipients need for further loans to
guarantee repayment with interest. So it was that Italian bankerscould finance the French absolute monarchy and south German
bankers the Spanish abso lute monarchy . Financiers did not nee d
to be tied to a particular state to flourish prov ided they co uld
find ways of making sure the state did not actually confiscate
their wealth.
Commodity capital could also flourish in all sorts of political
structuresin slave societies f medieval antiquity, amid the
battling lordships of the e arly feudal pe rio d, in the c entralised
absolutist states of late feudalism. Y et the more it developed, the
more it came to require the protection of state structures it
could influence. Otherwise those who controlled states co uld
present obstacles to it: pillaging merchant convoy s on the road,
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allowing pirates to intercept seaborne traffic, imposing local
customs dues that prevented the gro wth of a truly national, let
alone international, market, imposing price controls that
restricted the potential for profit making.
So from quite an early period o nwards, merchants tended to
encourage the growth o f political structures under their own
control. A s Braudel tells of the medieval period, there arose:
...business rivalries between individuals, between cities and
betwe en natio ns as a nat ional group o f merchants was calle d.
Sixteenth century Lyons was dominated by.. .organised rival
groups, each living as nation... Their presence meant theestablishment of empires, networks and colonies in certain
areas. Trade circuits and c ommunications were regularly
dominated by po werful groups who appropriated them and who
might forbid other gro ups to use them. Such groups are easy to
find when one starts looking for them, in Europe and eve n
outside Europe.6
Productive c apital is necessarily much mo re dependent than
merchants capital upon state power. It cannot function without,
on the one hand, a guarantee of its own co ntrol of means of
production (a guarantee which, in the last resort, relies upon
armed bodies of men), and, on the other, a labour force which
has been freed from co ercion by any o ther social group (slave
owners or feudal lords) and from any control o ver means ofproduction.
If local state power prevents these c onditions arising, the
development o f productive capital is stunted: there were
absolutist states in which finance capital flourished b ut
productive c apitalism barely too k root, and medieval cities in
which art isans prod uced c ommodities for the market without
the separation of workers from the means o f production which
was required to mov e fro m simple c ommodity pro duc tion to
capitalist produc tion.17
When Marx wrote ab out the pr imitiv e ac cumulatio n of capital
he was not just describing the (very barbaric) means by which
the early capitalists built up their fortunes. More importantly, he
was pointing to the social and po litic al me asures which were
needed to c oncentrate means of production in capitalist hands
and to free the labour force. The lull development of capitalism
requires that productive c apital subjugate commodity and
money capital to itself. Only productive capitalthe ex ploitation
of workers in the labour proc essguarantees a co ntinually
growing pool of surplus value and, with it, a source o f ever larger
profits for capitalists of all sorts.
If the development of productive c apital, and to a lesser extent
commodity capital, is entangled with the development o f the
geographic state, then so is the deve lopment of capitalism as a
who le even if in the fo rm o f money capital capitalism seems to
have no need for the state.
The point is importantmoney c apital often seems to be the
pure form of capital, the form in which the self expansion of
value is most v iv idly to be see n. But like the othe r forms of
capital, it is in reality, as Marx put it, not a thing but a relation,
a relation which involves the exploitation of people at the point
of production. And that ex ploitation needs to b e underpinned by
the political structures of the state.
Any pro duc tiv e capital gro ws up within the confines of a
particular territory, alongside other sibling capitals (they are, as
Marx describes them, warring bro thers). They are mutually
dependent on each o ther for resourc es, finance and markets.
And they act to gether to try to shape the soc ial and po litical
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conditions in that territory to suit their own purposes.
This involv es an effort to free labour from the co ntrol of other
classes, to remov e obstacles to the sales of their products, to
create an infrastructure (ports, roads, canals, railways) to fit
their requirements, to establish sets of rules for regulating their
relations with each o ther (bourgeois property laws) and to
create an armed power which will protect their property bo th
from domestic and ex ternal threats. Their efforts to achieve all
these things will be aided if they can supplant a mass of local
dialects and languages with a single form of spoken and written
speech. Their aim, in short, has to be to cr eate a national statepowerand with it a national consciousness and language.
The national state and different nationally base d capitals grow
up together, like children in a single family. The development of
one inevitably shapes the development of the others. This does
not mean that the structures of the state are an immediate
product o f the needs of capital. Many of the elements of the pre-
capitalist state are restructured
to fit in with the needs of the c apitals that arise within them,
rather than simply being smashed and replaced. But they are
actively remolded, so as to function in a very different way than
previously , a way that co rresponds to the logic of capitalist
exploitation.
. Industrial and agrarian capitals were usually not nearly
powerful enough to shape the who le of the po litical structure.
But their presence could be a significant counterweight to the
old baronies, so making it easier for kings to replace the
decentralised feudalism of the early medieval period with
absolute monarchies. The mercantilist policies of these
monarchies then provided the impetus towards a wide
development of co mmercial capital and a much mo re limited
development of productiv e capital within the co nfines of each
state.
This growing weight of capitalist interests became decisive when
the absolutist states themselves entered into crisis. In England in
the 164()s and France in the late 17 80s and early 1 7 90s theywer e able to ensure that the so cial and po litic al c risis was
resolved by the establishment of unitary national state
structures that would serve their interests. The only viable
alternatives to the crisis were those which enco uraged capitalist
dev elopment (ev en if those, like Cromwe ll in Britain and the
Jacobins in France, who imposed these alternatives did so in
opposition to the immediate desires of some powerful capitalist
interests).
These national states then became the model for those elsewhere
who want ed to b reak out o f the b ackwar dness o f dec ay ing
feudalism or to escape foreign colonial co ntrol. Sometimes this
was a case of already dev elo ping bourgeo is or pe tty bourgeois
groups seeking to establish a national state under their owncontrol; on other oc casions intellectuals or army o fficers saw
their own interests as best advanced by using state power to
impose capitalist forms of ex ploitation and acc umulation on the
rest of the po pulation.
In every case the development of groups of industrial and
agrarian capitals is inseparable from the transformation of the
geographic area in which they are based into a national state
with its o wn language, sy ste m of laws, banking sy ste m and so on.
Stages in the development of the state and capital
Classical economics prov ided an acco unt of capitalism in which
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the state played a negligible role. It was a theory of pure capital,
of self expanding capital which took no regard of national
frontiers. It was this theoretical acco unt which Marx took up in
Capital and carried through to its logical conclusion, showing
how c apitalism contained inbuilt co ntradictions ev en when
considered in the most abstract manner.IS
But the real, concre te history of capitalism was always v ery
much intertwined with the history of the state. Classical
economics was, in fact, an empirical description of o nly o ne,
historically limited, phase of the sy stem, that of the mid-19th
century. Things were v ery different when Adam Smith wrote, ashe himself recognised when he co mplained about the dev otion of
Britains business classes to its empire :
To found an empire for the sole purpose of raising up a people of
customers may at first sight appear a project fit only for a nation
of shop keepers. It is, howev er, a project altogether unfit for a
nation of shop keepers, but extremely fit for a nation whose
gov ernment is influenced by shop keepers.
The growth of British capitalism in the two c enturies befor e
Smith had, in fact, been very dependent upon sponsorship by
the state and the economic activities of gov ernments. The
enclosure acts, the navigation laws, the great state sponsored
monopolies headed by the East India Company, stateexpenditures on equipping the armed forces, especially the
navy , all played a v ital part in that growth. A v ery long spell of
state sponsorship, of mercantilism, was necessary for British
capitalism to dev elop sufficiently to be able to dominate the
world on the basis o f the free trade urge d by Smith.
The Smithian doctrine did not become the practice of British
capitalism until the 1840s and 1850s (with the repeal of the Corn
Laws and the removal of India from the control of the East India
Company) and even then the forc es of the British state still
played a c entral role in imposing free trade on other parts of the
world. The Opium Wars are just one example.
What is mor e, this c lassical phase did not in pr actic e last much
more than half a century. By the 1880s and 1 890s Britishgov ernments were carving out new colonies in Africa to
supplement their old o nes in Asia and the West Indies. A nd
although there were not to be formal measures (tariffs, quotas)
tying the colonial economies to Britain until the establishment of
imperial preference in the 1 930s, there were a mass of informal
links.
Capitals had established themse lves in Britain through close
links with the national state. Once established they had then used
this national base to enco mpass the rest of the world. And when,
after a few decades, capitals from o ther co untries began to
challenge their dominating role, they then turned once again to
their own national stale to establish areas of priv ileged access for
them.
The newer centres of c apital accumulation that emerged
alongside Britain in the 19th century were as dependent upon
national state support as British capitalism had been previously.
German, Italian and Yankee capitalists all looked to a national
state which would use its power to impose protectionist
measures against outside competition: the rise of indigenous
capitalist firms in these countries was closely tied to the
establishment of unitary states prepared to accede to their
demands (the unification of Italy, the v ictory of the North in the
Americ an Civ il War, the e stablishment of the Ger man Empire
under Bismarck).
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Capitals aided the cr eation of the unified stateand success in
the struggle for unification usually gav e an enormous bo ost to
indigenous capital (eg the tremendous growth o f American
capitalism in the dec ades after the Civil War and of German
capitalism after the Franc o-Prussian War).
Historically, then, capitals have never dev eloped acco rding to
the anti-statist schemas o f classical economics. They have
influenced and been influenced by the state structures in which
they have found themselves. This has left its impact on the
specific features of the individual capitals.
Regarded simply as accumulations of wealth, all capitals may
have the same character, differing only in their size. But each
individual capital, like eac h individual commodity , has a twofold
character. A s well as being measurable in terms of ex change
value, it is also a concr ete use v alue a co ncrete set o f relatio ns
betwe en indiv iduals and things in the proce ss o f pro duc tio n.
Each particular capital has its concr ete way s of bringing together
labour power, raw materials and means of produc tion in the
production proc ess, of raising finance and getting credit, o f
establishing networks for distributing and selling its output.
It inevitably turns for assistance in all of these tasks to other
loca l capitals and to the state in which it is locate d. Capitals in a
particular geographical location do not merely compete witheach other; they also c o-operate with each other and with the
state to establish mechanisms for ac hieving mutual goals. And
this co-operation inevitably leaves its imprint on the internal
make up of each cap ital, so that a particular c apital would find it
very diffic ult to c op e if it were sudde nly to be t or n apart from
the oilier capitals and the state with which it has co-existed in
the past.
The groups of capitals and the state with which they are
associated form a sy stem in which each affects the others. The
specific c haracter of each capital is influenced by its interaction
with the other c apit als and the slate . It re flec ts no t only the
general drive to expand v alue, to accumulate, but also the
specific env ironment in which it has grown up. The state and the
individual capitals are intertwined, with eac h feeding off the
other . This interactio n takes place in different ways. The legal
code of the state and the way it raises rev enue, influence, and are
influenced by, the internal organisation of each capitalthe
relationship between o wners and managers, acc ounting
procedures, ev en the ease with which it can recruit and lay off
labour. They also affect and are affected by the relations between
capitalsthe extent to which there is a fusion between
productive capital and merchant capitals (with firms doing their
own marketing), or between finance capital and productive
capital (with firms depending on their banks to raise mone y).
Neither the state no r the particular capitals can easily escape
this structural interdependence. The particular capitals find it
easier to o perate within one state rather than another, becausethey may have to pro foundly r estructure both their internal
organisation and their relations with other c apitals if they mov e
their operations. The state has to adjust to the needs o f
particular capitals because it depends on them for the resourc es
particularly the re venues from tax ationit needs to keep
going: if it goes against their interests, they can move their liquid
assets abroad.
This structural interdependence explains why the capitals that
grow up in one particular state tend to differ in certain ways to
those that grow up in other states. For instance, the level of
monopolisation of British capital tended to be less than that of
German and American capital in the early y ears of the 20th
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century ; the role of the banks tended to be different in pre-First
World War Britain to their role in Ger many or France; the state
was muc h mo re impor tant in the formatio n of a skilled lab our
force in Germany than in Britain in the 19th century; today
Japanese firms typically raise finance in a rather different way to
British or A merican firms; the influence o f the state on private
capital investment is much greater in Japan or France than in
the US.
Such structural adjustment of states and capitals to each other is
necessarily acc ompanied by something else the intermingling
of their personnel so emphasised by the instrumental view o fthe state. The relationship betwe en the capitals based in a
particular country and their state is not simply a relationship
betwe en imper sonal structures. It is a relationship between
people, between those engaged in ex ploiting the mass o f the
population and those who control bo dies of armed men.
Personal contact with the leading personnel of the state is
something every capitalist aims atjust as ev ery capitalist seeks
to c ultivate ties of trust and mutual support with certain other
capitalists
.
Relations between the ruler s of the state and the capitalists who
have ac cumulated wealth within its orbit tend to be much closer
than cithers relations with outsiders. The fact that the leading
personnel of the state went to the same schoo ls as the leadingcapitalists, go to the same clubs, and are intermarried with each
other, is v ery important to the individual capitalists in much the
same way as are interlocking directorships between firms, their
suppliers and their bankers. To deny this, as some critics of the
instrumental account of the state do, is not to take acco unt of
the fact that both the state and the capitals are concrete
complexe s of social relationships, in which the character o f the
leading personnel is o f enormous importance.
The market models of classical and neo-classical eco nomics
portray capitals as isolated atoms which engage in blind
competition with other capitals. In the real world, capitalists
have always tried to boo st their competitive po sitions by
establishing alliances with each other and with ambitiouspolitical figuresalliances cemented by money but also by
intermarriage, old boy networks, mutual socialising.20 Knowing
the right people is an important complement to adequate finance
for any successful capitalistindeed, often an indispensable
precondition for getting that finance.
The networks of who knows whom hav e grown up within the
orbit o f particular national states, usually around particular
major cities. For instance, in the United States in the mid-197 0s
there was a concentration of co rporate head offices, with most
of the top 5 00 corpo rations being located in the mid-Atlantic
and East North Central regions. Despite the gro wth of sunbelt
industry, only 12 percent of head offices were in the South.21
Even in multinational corporations, what is sometimes calledthe headquarters effect is at work. As one c ommentator has
noted:
Multinationals tend to locate the activities which c reate the
greatest added value and which give them the greatest
competitive edge as close as po ssible to their headquarters.22
The extent of the linkages which have grown up between national
states and the capitals within their boundaries is shown by the
difficulties the European Community has in overcoming:
the refusal by go vernments, utilities and monopoly industries to
purchase from suppliers outside their own co untries. At stake is
a market valued at 281 billion, or 10 percent of European
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Community ec onomic o utput. It is a bigand sometimes sole
source of demand for products ranging from turbine generators
to telephone exc hanges and has long been used by gov ernments
to promo te national champion industries at the ex pense of
foreign rivalsFewer than 5 pen cut of all central, regional and
local public orders go to bidders from other c ountries and many
are awarded on a non-competitive single tender has is.:^
The autonomy of the state
There are cases in which those who c ontrol the state break with
those who control the capitals within their territory. The Nazisdid confiscate Thy ssens wealth and establish their own Hermann
Goering Werke as an important co mponent of the German
economy . Perons first gov ernment in Argentina did seize the
super-profits of the agrarian capitalists and redirect them into
state controlled industrial development. Nasser in Egypt and the
Baathists in Sy ria did dispossess big capital (both indigenous
and foreign) and transform it into state c apital. Those who
controlled the state machines of Eastern Europe after the Second
World War did use the m to impose almost c om plete statificatio n
of the means of production.
There are also many cases in which the individual capitals
behav e in way s detrimental to the inte rests of their state
moving funds and investment abroad, doing deals with foreigncapitalists that undercut o ther local capitals, ev en selling
weapons to states fight ing their own. Y et ther e ar e limits to the
extent to which the state can break free of its capitals, and
capitals of their state.
The limiting case for the state is that, ev en if it ov errides the
interests of particular capitalists, it cannot forget that its own
revenues and its own ability to defend itself against other states
depend, at the end of the day, o n the continuation of capital
accumulation. Thus the Nazis could ex propriate Thyssen, they
could seize the wealth of Jewish capitalists, they could establish
the horrific machinery of the death c amps without it providing
any appreciable benefit to German capital, they c ould ev en insist
on co ntinuing the war after it was clearly going to be lost and theinterests of German capitalism would have been serv ed by
attempts at a negotiated peace. But they c ould only do all of
these things so long as they ensured that capitalist ex ploitation
took place o n the most favourable terms for c apital (state and
private) and, therefore, that acc umulation co ntinued. The same
applies to Pero n, Nasser, the Baathists, the East European
regimes and so on.
The limiting case for the indiv idual capital is that though it can,
with co nsiderable difficulty , uproot itse lf from one national state
terrain and plant itself in another, it cannot operate for any
length of time without having some state to do its will. It is too
vulne rab le to try to operate in a Wild West situatio n in which
there is no effective state, leaving it prey both to forces be low
which might disrupt its normal rhythms of explo itat ion and to
other capitals and their states.
A b reak, e ithe r o f the state with its capitals o r o f the c apitals with
their state, is a difficult and risky bu siness. If the state turns on
private c apital, it can c reate a situation in which people begin to
challenge not merely private capital but capital accumulation as
such and, with it, the hierarchies of the state. If a private capital
breaks with its stale it r isks b eing left to fend a lone in a hostile
and dangerous world. So there is neither an easy , peaceful road
to state c apitalism nor an easy shift of industrial capitals from
one metropolitan centre to another.
The class character of the state bureaucracy
Most discussions of the state and capitalism never even to uch
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one major questionthe class character of the state bureaucracy
itself. The assumption is usually that it is simply a passive
creature o f a capitalist class whose own position is defined by its
private o wnership of the means of production. Sometimes the
bur eaucr acy is pr esented as having inter ests o f its own which
may make marginal encroachments o n the interests of private
capital, but this is rarely spelt out: it is usually no more than an
ad hoc assumption thrown in so as to make sense of individual
events.
Such a view made a certain sense when Marx was looking at mid-
19th century British capitalism with its minimal nightwatchmanstate. State expenditure was at very low levels and taxation o nly
marginally affected the pricing of goods or the level of peoples
disposable incomes. Howev er, this acco unt of the state can make
no sense o f the absolutist period which witnessed the rise of
productive capitalism or of capitalism in the present century .
In both c ases, the state bureaucracy itself is a very significant
social layer, state ex penditures play a v ery important part in
determining the way soc iety dev elops, and state taxation and
borrowing dec isiv ely influe nce the ge neral structure of pr ices
and the disposable incomes of the different classes.
Marx went far beyo nd the view he put forward in the Communist
Manifesto when, in 187 1, he wrote that the complicated state
machinerywith its ubiquitous and co mplicated military,bur eaucr atic , c ler ical and judiciary or gans, encoils the liv ing
society like a boa co nstrictorEvery minor social interest
engendered by the r elations of soc ial groups was separated from
society itself, fixed and made independent of it and opposed to it
in the form of state interest, administered by state priests with
with ex ac tly deter mine d hie rar chical func tions.
He emphasised that such a state bureaucracy did not merely live
off exploitation by separate, private interests, but superimposed
on them its own ex ploitative activities. The state was not only a
means of the forcible do mination of the middle class but also a
means of adding to the direct economic e xploitation a second
exploitation of the peo ple, by assuring to their [ie the middle
classsCH) families all the rich plac es in the state ho usehold.The stale bureaucracy arises to assure the domination of the
existing ruling class, but in the process be comes a parasite
which is c apable of humb ling under its sway ev en the interests
of the ruling classes>24
Under ageing capitalism, the pro portion of the total income o f
society passing through the hands of the state is usually much
greater than income going directly to private capital as profits,
interest and rent. Investment directly undertaken by the state is
often more than half total investment.25 The state bureaucracy
directly disposes of a ver y big portion of the fruits of
exploitation and oversees a great amount of economic ac tivity.
Its class character is very important to the whole functioning of
society.
There is enormous c onfusion among many professed Marxists as
to what co nstitutes a class. They argue that class depends on
individual ownership (or non-ownership) of property, and that
therefore the state bureaucracy c annot be an exploiting class or
part of an exploiting classhence the claim that the ruling
stratum in the Eastern states has not in the past been a class,
although it is conceded that privatisation might now be
transforming it into 7 one.
But classes, for Marx himself, were aggregates of people whose
relationship to material production and ex ploitation forced
them to act together c ollectively against other aggregates. In an
unfinished final chapter to v olume thre e of Capital Marx insists
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that classes cannot be identified simply by the sources of
rev enues since this would lead to an infinite division into
classes, par alleling the infinite fragmentation of interests and
rank into which the division of soc ial labour splits labourers as
well as c apitalists and landlo rdsthe latter , eg, into o wners o f
v ineyard s, farm owners, owners o f forests, mine o wners and
owners of fisheries.26
What makes suc h div erse groups co me together into the great
classes of modern society, he argues elsewhere, is the way in
which the revenues o f one set of gro ups arise out o f the
exploitation of those who make up other groups. The socialrelations of production and exploitation divide society into two
great groupings, one of which ex ploits the other. The historic
opposition between them forces each to band together against
the other, to behav e as a class.2
Feudal lords form a c lass because each depends for his survival
on the surplus which he forces the serfs to hand ov er to him and
therefore will unite with other feudal lords against all serfs:
whe ther he par tic ipates in the explo itat ion of the serfs as an
individual landowner, as a dignitary in a religious order or as a
roy al official, is a secondary matter compared to this
fundamental definition of his class position. For this reason,
holders o f high office in a state based upo n feudal relations of
exploitation are part of the feudal ruling class: both their ownexistence and the functions they fulfill in the state depend upon
them identifying with the prevailing form of exploitation.
In the same way , under mature capitalism, the directing layer in
the state bureaucracy is dependent upon successful capitalist
exploitation and accumulation. It cannot get the rev enues it
requires if this is not happening. And so it is forced to pro vide
conditions which will encourage capital accumulation within the
boundaries o f its state on the o ne hand to make sure that
resistance to exploitation by the mass of the population is kept
to a minimum, on the other to enhance the competitiveness of
nationally based capital as opposed to capital that is based
abroad.
Any state b ure auc racy which fails to acc omplish this is go ing to
see the resourc es it needs for its own privileges and its own
functioning dry up. Whether it likes it or not, it is com pelled to
act as an agent of capital accumulation and to identify its own
interests as national capitalist interests in opposition both to the
interests of foreign capital and the working class.
It is this requirement whic h sets the most fundamental limits tin
the autonomy of the state. Just as the individual capitalist can
choo se to enter in o ne line of business rather than another, but
cannot avo id the compulsion to exploit and accumulate in
whatev er line he go es into , so the state bureaucrac y can move in
one direction or another, but cannot ignore the needs of national
capital accumulation without risking its own longer term future.
Its autonomy co nsists in a limited degree of freedom as to howit enforces the needs of national capital accumulation, not in any
choice as to whether to enforce these or not.
The dependence of the state bureaucracy on capitalist
exploitation is often concealed by the way in which it raises its
revenuesby tax ation of incomes and ex penditure, by
gov ernment borrowing or by printing money. All of these
activities seem, on the surface, to be quite different from
capitalist ex ploitation at the point o f production. The state
therefore seems like an independent entity which can raise the
resources it needs by levy ing funds from any c lass in society.
But this semblance o f independence disappears when the states
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activities are seen in a wider contex t. State rev enues are raised
by tax ing indiv iduals. But indiv iduals will attempt to reco up
their loss of purchasing power by struggles at the point of
productionthe capitalists by try ing to enforce a higher rate o f
exploitation, the workers by attempting to get wage increases.
The balance of c lass forces determines the leeway which exists
for the state to increase its rev enues. These are part of the total
social surplus valuepart of the total amount by which the value
of workers output exceeds the co st of reproducing their labour
power (ie their take home wages).-
In this sense, state revenues are co mparable to the otherrevenues that ac crue to different sections of capitalto the rents
accruing to landowners, the interest going to money capital, the
profits from trade go ing to commo dity c apital and so o n. Just as
there is continual conflict between the different sections of
capital over the sizes of these different revenues, so there is
continual conflict between the state bureaucracy and the rest of
the capitalist class over the size of its cut from the total surplus
value.
The state bureaucracy will, on o ccasions, use its own special
position, with its monopoly of armed force, to make gains for
itself at the expense o f others. In response to this, the other
sections of capital will use their own special positionindustrial
capital its ability to postpone investment, money capital itsability to move ov erseasto fight back. Yet in all this the
different sections of capital cannot forget their mutual
interdependence.
The state, money capital and commodity capital cannot increase
their revenues unless surplus value is being generated in the
domain of production. Productive capital cannot get surplus
value unless the state e nsures a plent iful supply of free labour
with suffic ient skills , and pro vides means o f phy sic al de fenc e. I t
also requires that co mmodity c apital ensures realisation o f the
surplus value and that money c apital can provide the funds for
further ex panding production. Commodity capital cannot
function effectively unless the state lays the basis for the
oper ation of a stable national market and uses its influence toopen up foreign markets.
Each element branches out on its own, like nerves in a human
body , but still canno t escape its dependenc e upon huge
ganglions where it intertwines with all the others.
These ganglions, knots where the mass of different capitals are
entangled with the state bureaucracy they sustain and depend
upon, are the national capitalist eco nomies.
Those who run the different elements can act, up to a certain
point, as if they had complete autonomy . In particular, money
capital and commodity c apital can act as if they had no
dependence upon the geographically ro oted means of
production of industrial capital. In the same way, those who runthe state can act, up to a certain point, as if their rev enues did
not depend upon successful capitalist exploitation and
accumulation. This is what happens when reformists, populists
or ev en fascists get co ntrol of parts of the state structure and use
them to carry through social change.
Y et at the end of the day the mutual interdepe ndence of the
different eleme nts asserts itself in the most dramatic fashion,
through crisesthe sudden collapse of the sy stem of credit, the
sudden inability to sell the c ommodities, sudden balance of
payment crises or e ven the threat of state bankruptcy. The
autonomy of those who run the state is, in this sense, a bit like
the autonomy of the banker, the commo dity speculator or the
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individual industrialist. Each is able, up to a c ertain point, to ac t
as if the ov erall drive to ex ploit and accumulate can be ignored.
The banker can lend without any real consideration of the ability
of the debtor to pay back. The co mmodity speculator forgets the
dependence of his profits on co nsumption that can o nly take
place if there is an expansion of capitalist production. The
individual entrepreneur can be lulled by temporary success and
allow his enterprise to lag behind in the drive for further
investment and innovation. Those who c ommand the state can
embark on all sorts of ambitious schemes that weaken the ability
of nationally based capital to c ompete with its rivals elsewhere.But all are eventually forced back into line by the pressures of
the total system.
This has v ery important implications for the class po sition o f
those who direct the bureaucracies o f the state. They may not
own individual chunks of capital. But they are forced to behave
as agents of capital accumulation, to beco me, acco rding to
Marxs definition, part of the capitalist class.
Marx points out in Capital that with the advanc e of capitalist
production there takes place a division of function within the
capitalist class. The owners of c apital tend to play a less direct
part in the actual organisation of production and ex ploitation,
leav ing this to highly paid managers. But, insofar as thesemanagers continue to be agents of capital accumulation, they
remain capitalists. The Austrian Marxist Hilferding developed
the argument further, pointing to the divisions within a single
capitalist class between the mass of rentier capitalists, who rely
on a mor e or less fixed rate of return on their shares, and
promoter capitalists who gain ex tra surplus value by gathering
together the capital needed by the giant corporations.29 We can
add a further distinction, between those who manage the
accumulation of individual capitals and those who, through the
state, seek to promo te the dev elopment of the sibling capitals
operating within an individual statewhat may be called state
capitalists or political capitalists.
There are many finance capitalists who are also merchant
capitalists and productive capitalists. There are many
entrepreneurial capitalists who are also share owning capitalists.
In the same way, those who concern themselves with
accumulation at the nation state level o ften come from the ranks
of entrepreneurial or shareholding capitalists and will often
return there at a later date.
So it is that in Britain the heads of giant private c ompanies hav e
included individuals who made their careers first by rising to the
top of nationalised corporations: in two well known cases, those
of Alf Robens and Richard Marsh, using political succ ess within
the Labour Party as a stepping stone to running the state
corpo ral ions and then moving into the private sector. So it is
that in France the career of Calvet, the head of the giant private
sector c ar firm Peugeot, has involv ed spells in both public andpriv ate secto r. So it is that in Japan it is normal for people who
have made careers in public agencies o f accumulation, like the
powerful Ministry of International Trade and Industry, to mov e
to top jobs in the private secto r. So it is in Italy that the
management structure of the key nationalised enterprises, 1RI
and ENI, has long been intertwined with the political hierarchie s
of the gov ernmental parties, particularly the largest, the
Christian Democ rats.
One account of a notorious Italian financial scandal, by a
Financial Times journalist, tells:
To raise money in Italy is to secure a loan from a bank. The
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banks, ho wev er, can in turn be heav ily co nditioned by the
politicians In the early 1 980s/ some three quarters of the
Italian banking system was owned by the state. And in many
cases the senior posts are po litically conditioned appointments,
the accepted spoils of power 0
In the 1 960s, the Christian Democratic Party move d to
increase its control of the banking sy stem and the co nstellation
of public sector corpo rations31 With the formation of centre
left coalitions there was an intensifying struggle for top pub lic
sector jobs between the different gov ernmental parties:
The Christian Democ rats and Socialists have sp lit into factions
competing as much against each o ther as against the theoretical
Communist opposition These factions and cliqueshave found
their new battlegro und in the banks and other appendages of the
state.i2
A new b reed o f entr epr ene ur was emerging. Te chnic ally its
members represented state enterprise and the public sector; but
in practice they mov ed like financial barracuda, acting
sometimes on their own behalf, sometimes for their political
patrons, but unfailingly with money from the public purse
The fiercest of the b arrac uda was Eugenio Cefis, chairman o f ENI,
the state oil group. And his hand was behind the most dramatic
example of this politicisation of industry in 1 968, when ENI
secretly built up a c on/rolling shareholding in Montedison,
Italys biggest, and hitherto privately owned, chemical
concern.^
Y ears before this the fir st head of ENI, Enric o Mattei, had used
the funds under his control to dominate the politiciansto the
extent he was considered the most powerful single figure in
Italy, ev en setting upwith funds that theoretically belonged to
the statehis own newspaper, // Giorno.
Today ENI is estimated to be the fourth biggest industrial
corpo ration in the world o utside the US.*
The individual political capitalists do not owe their highlyprivileged position in society to the size of their individual
holdings of stocks and shares. Political influence and personal
guile are usually the key. But they hav e in common with
shareholders and private entrepreneurs an interest in
maintaining the level of exploitation and accumulation. The
Financial Times recently noted of France:
The chairmen of state owned co mpanies are appointed for three
year terms. The se day s the be st way of ensuring y ou r
appointment is renewed whatever yo ur po litical friendships
is to produce profits.
In behaving like this, the state appointees behave as much like
capitalistsas living embodiments of capital accumulation at the
expense o f workersas do priv ate entrepreneurs or
shareholders.
Imperialism: the merger of finance
capital, industrial capital and the state
We are now in a pos itio n to make sense o f the m erging of the
state and capital which was so central to the writings on
imperialism of Lenin and Bukharin. The logic of capitalism lead s
to the growing conc entration and c entralisation of capitalthe
replacement of many small capitals by a few large ones. The
groups of these that operate within any single country are
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dependent on each o ther and the national state, laying the basis
for a new integration of industrial, commerc ial and finance
capital around the state. Each national state becomes the nodal
point around which capitals cluster, even when their activities
lead them to branch o ut from it to penetrate the rest of the
world.
But that is not the end of the matter . The mutual
interdependence of each national state and a few large capitals
gives rise to a tendency for the boundaries between the state and
the capitals to break down. The capitals turn increasingly to the
direct use of personal influence (rather than the indirect use ofmarket pressures) to determine how the state acts, and the state
bur eaucr acy inc reasingly interferes in the internal manageme nt
of particular firms.
The interpenetration of national capitals and the national state
finds expression in an important change in the way in which
capitalist competition itself takes place. It is increasingly
regulated within national boundaries, while assuming the form of
military, as well as (or even instead of) market competition
internationally.
This new dimension of co mpetition does not at all negate the
dependence of the capitals and the state bureaucracy upon
capitalist ex ploitation and accumulation. Acquisition of themeans of destruction on the necessary scale to assure success in
war depends upon t he same driv es as ac quisition of the means of
production on the necessary scale to assure success in the
struggle for marketsthe driving down of wages to the c ost of
reproduction of labour power, the driving up of the productivity
of labour to the level which prev ails on a world scale (so that
nothing is lost in translating national concrete labour into
international abstract labour), and the drive to use the surplus
for acc umulation.
The only difference, in this respect, between military and
economic competition is the form the accumulation takes
whe ther it is in te rms of an ac cumulation of use v alues that can
be u sed to pro duc e new go ods or of use v alue s that c an be used
to wage war. In either c ase the importance of these use v alues to
those co ntrolling them is determined by c omparison with use
values e lsewhe re in the sy stem, a c omparison whic h transmutes
them into exc hange values. As Lenin emphasised, periods of
peaceful competition prepare the way for periods o f all out war,
and periods of all out war prepare the way for periods
ofpeaceful c ompetition.18
So even in periods of peace the relations between the different
capitals are not simply depe ndent, as in Marx s model in Capital,
on their market relations. Conditions are those of an armed
peace in which the re lative influence of the different states helps
determine the relative success of the different blocs of capital
associated with them. And this relative influence depends at the
end of the day on their ability to acc umulate military hardware:it is this which determines their ability to build empires, acquire
client states and create alliances.
I hav e outlined the history o f this phase of capitalist
dev elopment inExplaining the Crisis and there is no point in
repeating it here. I tsuffices to say that the trend towards the
merger o f state and industrythe imperialism of Lenin and
Bukharinbegan in the late 19th Century. But it did not re ach its
fullest dev elopment until the 1 930s,when individual private
capitals seemed incapable of reco vering from eco nomic crisis if
simply left to their own dev ices. Then for more than40 years the
march o f statification seemed unstoppable. Everywhere the state
sector grew remo rselessly, with state control o r ownership of
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basic older industrie s like co al, stee l, tr ansport and elec tricity
generation, and state sponsorship (and sometimes ownership) of
the most technologically advanced industries.
The process went furthest, of course, in the bureaucratic state
capitalisms o f the USSR, Eastern Europe and China. But in
countries as diverse as Japan and Brazil, Argentina and Italy the
state exercised an enormous degree o f influence ov er the
activities of the great c orporations, private or nationalised,
with peo ple flitt ing from high po sitions inside r uling parties or
state bureaucracies to the management of the great corpo rations
and back again. To be a power in the Japanese LiberalDemocrats, the Italian Christian Democrats or the Argentine
Peronist Movement was to influence the decision makingand
gain from the rev enuesof industry as we ll as the state. Eve n in
the most liberal of the Western c apitalisms, that of the US, the
key role o f the military sec tor gave the state enormous leverage
and cabinets tended to be to a large extent staffed with
corpo ration heads. What was good for General Motors was go od
for the United States, and a Robert McNamara could move from
helping to run Ford to bo mbing Vietnam and then to try ing, as
head of the World Bank, to create succ essful capitalisms in the
Third World.
The rise of state capitalism was acc ompanied by a decline in the
proportion of eco nomic transactions that crossed statefrontiers. Each national capitalist complex attempted to
undertake as wide a range as possible of economic and military
functions within its own boundaries, each trying to build
national steel, car, chemical, shipbuilding, electronic, munitions
and aircraft industries. Trade in manufactures as a proportion of
world ou tput had risen from an index figur e of 1.0 in 1 900 to 1 .2
in 1914. It fell back to 1.1 by 1920 and 1.0 in 1930 and then
slumped to 0.7 in 1940 and 0.6 in 195 0.40
Merchandise trade was equal to 43.5 percent of Britains national
product before 191 4. In the 1950 s it was down at 30.4 percent.
There was a similar decline for other co untries: from 11 .0 to 7 .9
percent for the US, from 29.5 to 1 8.8 percent for Japan, from
38.3 to 35.1 percent for Germany, from 28.1 to 25 perc ent forItaly.4 It reac hed its low point after the great slump of the
193 0s, when all the major powers and many o f the minor o nes
took the path of military state capitalism.
For a generatio n, then, trade and financial flows between
capitalist powers were subordinated to the demands of
competitive accumulation within national state bo undaries.
Transactions across state boundaries were dependent upon
negotiations at the state lev el. The national stale prov ided each
of the riv al sections of capital with:
/) A geographic base for acc umulation of means of production
and destructionie prov ision of trained labour power, priv ileges
as against other foreign capitals within a certain terrain thro ugh
subsidies, tariffs, exclusion of foreign produce, cheap stateproduced raw materials etc.
ii)Military force to protect them against foreign slate capitals
and to open up new areas o f privileged access.
iii)
iii) The orderly regulation o f commercial relations with other
capitals (through a stable legal sy stem) and the prov ision of
nationally based currency which can be manipulated against
other currencies.
iv)Protection against the sudden harm done to important
sections of nationally based capital if other sections with which
they were integrated suddenly c ollapsed.
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v )
Mike Kidrons picture o f a world of self contained, co mpeting
state capitals is very much an abstraction from this period. Y et
as an abstraction it misses out v ery important elements of
concrete reality. For the different phases in the cyc le of capital
continue to ex ist even in a world o f state capitals, and the need
to fulfil them leads to divergent pressures within the state-
industrial complex .
Thus even a self co ntained state capital can acc umulate more
quickly if it can gain access to funds, to money capital, outside
its boundaries. And some state capitals can increase their ownrates of acc umulation if they can invest o utside the national
stateespecially if this provides privileged access to commodity
markets. The fact that state diplomacy mediates the flow of
money capital and commodities does not mean such flows do
not occur.
So even where there is a co mplete merger of the state and capital
the different phases capital goes through create different interest
groups within the single state capitalist class. Where a co mplete
merger was never achieved in the first place, there are
tendencies to wards fission as well as fusion. The different
elements of capital and the state will be bound together, but will
also be co ntinually try ing to pull apart.
The differing pressures o f military and eco nomic c ompetition
will l ikewise pro duc e a c ombination of div ergent and co nv ergent
interests: sections of the state apparatus will identify with
accumulation of military hardware and will succeed in getting
sections of the industrial structure to make the same
identification. Other sections of industry will be more interested
in accumulation directed at market competition and will
endeavour to win sections of the state bureaucracy to their side.
The result is that even at the high point of state capitalism
national planning was very much a my th: what in reality
occ urred was a continual jockey ing for position between
different interest gro ups, each using politic al influence to get its
way . Y et ther e c ould nev er b e a c om plete b reakdo wn of the
national entity since access lo political influence meant putting
forward a programme which seemed lo relate to the interests of
the whole state capital. The divergent particular interests of
different sec tions of capital and the state were s till bound
together by a mutual dependence on national accumulation and
national state po wer.
Beyond state capitalism
The patterns of economic activ ity that characterised the period
of state capitalism began to change during the great boo m of the
195 0s and 1 960s. The state capitals increasingly traded with
each otherand as they did so the basis was laid for a new
internationalisation of production. World trade grew, on
average, at about twice the rate of world output, until by the
197 0s trade in manufactures was about the same proportion of
world ou tput as it had been in 1 900 (and 1 930). And tr ade did
not contract with the recessions of the mid-197 0s and early
1980s as it had in the inter-war years. Despite a co ntraction of
both wor ld output and wo rld trade in 1982 , trade grew faster
than output throughout the rest of the 1 980s.42 The trade-
output index so ared up to 1.4 by the mid 1980s4 and total world
trade grew by 40 perc ent in six y ears.44
But the bare figures understate the scale o f internationalisation
in the long boom and after. In the pre-191 4 period a
considerable amount of trade and a great amount of investment
had been between colonial powers and their direct or indirect
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dependents. In the long boo m the greatest growth in trade was
betwe en the adv anc ed industrial po wer s themselv es. So wher eas
about 7 0 percent of Britains trade was with agricultural
countries before 1 914, in the 1960s more than 7 0 percent was
with industr ial c ountries.45
There was a similar shift in the charac ter of inve stment. Whereas
in 191 3 only 6 percent of British direct ov erseas investment had
been in industry and trad e, in 195 8-61 20 per ce nt was in
manufacturing alone.40
Trade and investment in the long boom were increasinglybetwe en the adv anc ed industrial ec onomies themselv es. And so
things continued into the 1980s. There had been a flow of trade
and investment towards Newly Industrialising Countries and
Eastern Europe (especially Poland and Hungary) in the 1 97 0s. In
the 1980s the flow v irtually c eased exc ept in the case of the
handful of countries around the rim of the Pacific (South Kore a,
Taiwan, Thailand, Singapore, Hong Kong). There was a flow of
capital from A frica and Latin America back to the advanced
countries. And even the oil rich Middle Eastern states stagnated
through that decade.
What was happe ning was the integration of the e co nomies of the
advanced world with each other and with the Pacific NICs. The
behav iour o f muc h of the r est of the wor ld eco nomy became o fless concern to them. What is particularly important is the form
this integration took. There had, of c ourse, always been trade
betwe en national c apitalismsthis occ urr ed ev en at the high
point of 1930 s state capitalism. There had also alway s been a
mov ement of finance acro ss national bordersthe inability of
national state gover nments to control such flows was an
important facto r in leading them in the direc tion of state
capitalism in the early 1 930s. But the direct organisation of
production across national boundaries had been very rare
indeed. Until the 1 950s it was virtually restricted to the
integration of extractive industries in Third World countries (oil,
palm oil, coc oa, etc) into the manufacturing needs of companies
located within colonial powers.47
The growth of industry through the long boo m, however, broke
this pattern. The conc entration o f industry through takeovers
and mergers, o ften under the tutelage of the state, had led to the
emergence in particular countries of huge firms, able to c hannel
resources into innovation and productive inve stment on a scale
undreamt of before. They were not o nly able to dominate their
national market but to carv e out huge c hunks of the world
market for themselves, threatening to drive many o f their
competitors out o f business. These in turn could only surv ive if
they looked to an international mobilisation of resources, if they
became multinational, not only whe n it came to trade b ut also
whe n it c ame to pro duc tio n.
Multinational firms (eg ITT, Ford, Coca Cola) had ex isted in the
pre-war period. But they were not generally based uponintegrated international research and production: the British
subsidiary of a US car firm would generally dev elop and market
its own models independently of what happened in Detroit. It
was this that be gan to c hange in the 1960s and 197 0s. The
successful firms began to be those who operated international
development, production and marketing strategies. A lready by
the late 1950 s IBM (bolstered up by huge co ntracts for the US
military) was able to dominate the new main frame c omputer
industry world wide, Boeing (again bolstered by US military
contracts) began to drive riv al national civil aviation firms into
the ground, Ford and General Motors began in the mid-197 0s to
talk of the world car, designed acc ording to a single set o f
blueprint s and assembled fro m com ponents made in a do /en
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different countries. Petrochemical production ceased to be
confined within individual European countries and came to
involve elaborate pipelines carry ing materials from plant in one
country to plant in others.
A new stage of capitalist produc tion, base d upo n multinatio nal
enterprises, had arrived. This was an o utgrowth of the prev ious,
state capitalist, stage. Significantly, many of the most successful
enterprises, whose c ompetitive edge pushed others in a
multinational direction, were not themselves multinationals but
very muc h ty pic al pr oduc ts o f the state c apitalist er a. The
pressure of Japanese firms whose production facilities were stillvery muc h nat ionally based pushed For d and Gener al Motors to
talk of the world c ar in the late 197 0s; the pressure of the US
based Boeing for ce d the Euro pean ae rospace firms to pool their
efforts in the pro duction of the A irbus; the nationally based
Korean shipbuilding industry sc ooped the poo l, driving its rivals
elsewhere to massive programmes of closure and cutback.
But once the process of internationalisation of production was
under way, there was no stopping it. By the late 1 980s there was
hardly an industry in which firms in one country did not hav e to
work out inter national strategies, based upo n buying up,
merging with or estab lishing strategic alliances with firms in
other countries.
In motor s, the Japanese car firms established production
facilities in the US, turning out more v ehicles than the third
biggest A mer ican firm, Chrysler; the nationalised Fr enc h firm
Renault began a series o f acquisitions in the US, beginning with
the small fourth US car firm American Motors; Volv o too k over
General Motors heavy truck production in the US; Ford and
Volkswagen merge d their car pr oduc tion in Brazil; Nissan built
an assembly plant in north east England to produce hundreds of
thousands of cars a y ear, while Honda bought a 20 percent stake
in Rover. In tyres, the French firm Michelin made itself the
world s biggest produc er by taking over Uniro y al-Goodric h in
the US in 1988, and Italian firm Pirelli, the worlds sixth b iggest,
has been attempting to take over the worlds fourth biggest, the
German Continental.
In the construction machinery industry, the US firm Caterpillar
and the Japanese firm Komatsu, the two firms which dominate
internationally with more than half the world market between
them, have both forged alliances with smaller firms across the
globewith Komatsu taking ov er most of the o perations of the
third largest US firm Dresser, and Caterpillar ex tending a
manufacturing and design agreeme nt with Mitsubushi.
GEC in Britain has merged its heav y engineering produc tion with
the A lsthorn sub sidiary of CGE in France. CGE bought up I TTs
European operations some y ears ago and has now do ne a deal
with FIA T of Italy under whic h each gets a large minor ity
shareholding in the other, while GEC has also jo ined with
Siemens of Germany to take over the electronic firm Plessey.
The cost of foreign acquisitions of US companies was 10.9 billion
dollars in 1985, 24.5 billion in 1986, 40.4 billion in 1987 .
Japanese firms owned a total o f about 9 b illion dollars worth o f
US firms in 1987 , British firms about 24 billion dollars wo rth.48
Total French acquisitions in the US rose from FFr7 6 billion in
1988 to FFr10 8 billion in 1989.4
The wave of international takeovers was acc ompanied by a wav e
of joint ventures and cross-border alliances. The y ears 19 89-90
saw:
IBM with Siemens, Texas Instr uments with bot h Kobe Stell and
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Hitachi, Motorola with Toshiba , AT&T with bot h Mitsubishi
Electr ic and NEC, Vo lvo with Renault and perhaps Mitsubishi
Motors, Pilkingtons with Nippon Sheet Glass, Daimler Benz with
Pratt & Whitney , and, grandest of all, Daimler Benz s (vague )
collaboration with the Mitsubishi group.50
This multinationalisation of produc tion was not co nfined to the
advanced countries. It affected Third World and Newly
Industrialising Countrieswhere statification of industry had
previously tended to go e ven further than in the West.
Argentina and Brazil were ty pic al. Their industr ial base had beenestablished in the 1940 s, 1950 s and 1960s by the state
intervening to direct investment into heav y industryoften into
state owned companies.51 But by the early 197 0s it became
clear to the more farsighted industrialistswhether in the state
or private sec torthat they co uld not get the resources and the
access to the most modern technologies needed to keep up with
worldwide produc tiv ity lev els unless they found way s of
breaking thro ugh the co nfines of the natio nal eco nomy . They
began increasingly to tur n to for eign multinatio nals for lic ensing
agreements, joint production projects and fundsand they
began to o per ate as multinationals in other cou ntries.
A similar process has been at wo rk in Mexico, whe re the state
and the single Institutionalised Revolutionary Party long play eda dominant role. In the last two decades there has been a big
expansion of US subsidiaries in the norther n area, just inside
Mexic os bor der with the US. A firm like Alfa, the largest
industrial group in Mexico, with 109 subsidiaries spanning
automotive c omponents, food, petrochemicals and steel, has
had a growing number of joint operations with foreign firms. Its
director of finance tells, Three quarters of our non-steel
bus iness inv olves jo int v enture s. We have the c ulture of jo int
venture s. Suc h dev elo pme nts hav e led so me le ft wingers to see a
growth of neo-colonialism undermining national
independence. But at the same time, some Mexican firms have
themselves gone multinational, as with the glass maker Vitro
which has bought two US companies and b ec om e the wo rld s
leading glass container manufacturer, with its market almostequally split between the US and Mexico.
The same transition is now beginning to take place in South
Korea. Industrialisation under state direction built up heavy
industry controlled by a handful of chaebol conglomerates.
These were able to break into certain important world markets
like steel and shipbuilding (where Korea overtook Japan 25
years after Japan itself had overtake n Britain). But in the mid-
1980s they saw the need to shift to the mass production of cars,
electronics and petrochemicalsa step only possible on the
basis o f a mult inational rather than a mainly national scale o f
operations. Hy undai motors was 1 0 perce nt owned by
Mitsubishi of Japan and discussed supply ing small cars for the
US market with Ford , and Hyundai Electr onics se t up a small
subsidiary of its own in Californias Silicon V alley and signed a
deal (which the South Korean gov ernment vetoed) to assemble
IBM computers. Meanwhile, in petrochemicals, both Samsung
and Hyundai embarked in 1989-90 on a series of massive
investments designed at sco oping not just the South Korean
market, but that of the whole Pac ific basinin the face of bitter
competition from r ival firms in Taiwan, Thailand, Singapore ,
Malaysia and Indonesia.
The pattern of multinationalisation of the advanc ed Western
countries, the Third World and the NICs is now being repeated in
the case o f Eastern Europe. As I hav e shown in previous articles,
the first link ups between enterprise s in the then Eastern Bloc
and the West were alread y taking place in the late 1 960s.M By
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the late 1980s the process had a momentum of its own and was
one of the factors leading sections of the nomenklatura in
Eastern Europe to react to the political events of 1989 by
breaking sharply from the co mmand eco nomy and e mbr ac ing
talk of the free market. By late 1990 hardly a day went by
without so me further report o f the sett ing up of joint com panies,
of takeovers o r of new co -operation agreements between Eastern
and Western enterp rises.
The globalisation of finance
The intemationalisation of finance has proceeded much fasterthan the internationalisation of production. There was always
some lev el of bank lending acro ss national frontiers. But this
grew explosive ly in the late 1960 s: foreign currency
commitments of West European banks increased eightfold
betwe en 1 968 and 1 97 4; be twe en 1 965 and 1 97 5 the c om bine d
debt of 7 4 less developed co untries trebled. The crises of the
mid-197 0s and early 1 980s did not stop the trend: in the course
of the 1980s the debt o f the less developed c ountries doubled
again; the United States move d from being a cre ditor nation to
becoming a massiv e de btor ; by Septemb er 1985 total lending to
the world banking sy stem totalled 2,347 billion dollars;55 the
Eurobond market increased 7 0 perc ent in size in the single year
of 1985, with total issues worth 1 34 billion dollars.
Parallel with the growth in internatio nal banking went an
explosive expansion of international currency deals, so that the
total turnover was 15 0 billion dollars a day by 1984, twice the
figure five y ears earlier. The expansion of finance ac ross national
frontiers on this scale made attempts by gov ernments to control
national banking systems seem increasingly futile. The 1980s
saw a wav e of deregulation which fed back into the wo rlds
financial systems enco uraging further cro ss-border flows. As the
Financial Times noted in the mid-19 80s:
As deregulatio n and tec hno logic al advanc e pul