August 18, 2021 | 7 minutes read | Tags: Capitalism 101

Capitalism 101: Crisis and Imperialism

In the sixth installment of our ‘Capitalism 101’ series, we will be discussing Crisis and Imperialism. What is meant by the term ‘imperialism’, and why, under capitalism, do all roads lead to crisis?

Capitalism 101: Crisis and Imperialism

In the sixth installment of our ‘Capitalism 101’ series, we will be discussing Crisis and Imperialism. What is meant by the term ‘imperialism’, and why under capitalism, do all roads lead to crisis?

You can read the previous installment of our Capitalist 101 series, ‘The State', here.

What Causes Crises?

Capitalists are in two races with one another; the first is to reduce production costs, and therefore produce commodities that can be sold more cheaply than the competition. This allows the victor to win the second race — the race to accumulate ever more capital. The capitalists are therefore caught in a paradoxical game: trying to extract the greatest surplus value by selling commodities at the lowest rate of profit, which is best achieved through automation. Automation allows one worker, in a given amount of time, to produce many more commodities, but at the same time, reduces the value of each commodity.

What is the rate of profit? Simply, the rate of profit is the ratio of profit to total investment. The result of the aforementioned automation is that, as expensive high-tech machines are employed to increase the productivity of labour power, capital takes up a larger and larger proportion of the final value of the commodity — and the tendency of the rate of profit is to fall. This is because the source of value of a commodity, as we learnt here, is the human labour that went into making that commodity. Increased automation therefore means less human labour and a lower subsequent value.

However, this can only continue for so long. Labour power is the only commodity capable of creating more value than it takes to reproduce itself. This means that labour power is the only source of surplus value for capitalists: the motor of the capitalist system. The drive by capitalists to reduce production costs leads to an inevitable reduction of wages (in other words, the cost of labour to the capitalist). This soon leads to a crisis of overproduction — with lower wages, consumption among the workers plummets, along with the prices of commodities. The capitalists, seeing their profits hurtling downwards, slam on the brakes of production and fly over the handlebars, leaving the workers unemployed and destitute.

What is Monopoly Capitalism?

Marx writes of an era of 'free competition' between capitalists, with many different producers competing on equal terms to deliver goods to an unknown market at a reasonable price. At some point, however, these manufacturers realise that by expanding further down the production chain, the need to haggle with producers for raw materials is eliminated, and the commodities can be produced cheaper than their competitors. The manufacturers and the producers form cartels, and band together to protect one another from the shocks of the market, and undercut their competitors through boycotts, price-fixing, selective sales, long-term contracts with buyers, and systematic price cutting. A famous example of a cartel was Standard Oil, which was disbanded in 1911 for illegal monopolistic practices. Today, oil prices are instead fixed by the Organisation of Petroleum Exporting Countries, who make use of their national sovereignty to circumvent antitrust laws.

The cartel, once a strategic alliance between capitalists, soon merges into a permanent institution. Capitalism has progressed from the era of 'free competition' to the era of monopoly.

It is impossible to accurately analyse monopoly capitalism without examining the role of investment banks. One important thing to bear in mind when analysing capitalism is that, whether it is to be invested in a factory, shop, or office, capital always begins, and ends, with money. Money from production and money from banks (which were historically separate) merged during the twentieth century to create finance capital. This merger means that financial institutions have unprecedented knowledge and influence in all areas of a production process and can generate profits simply by manipulating and controlling the flow of money.

The relationship is mutually beneficial. The banks then start to take the role of the cartels, hedging their bets not just in different stages of the supply chain but in different industries altogether. Soon, through strategic lending, shareholding, and directorships in client companies, finance capital, rather than competition, comes to dominate and direct the course of capitalism. This Lenin calls the imperialist stage of capitalism.

However, the monopolist mass centralisation of capital does not do away with the contradictions at the heart of capitalism itself. Soon, the crisis of overproduction arises once more, and capitalism must find a way to adapt. This is usually done by intensifying productivity through new technology or by driving down wages, but in the late 19th Century, there were no such roads left. Capitalism looked overseas for a solution to its internal contradictions.

What is Imperialism?

The Marxist understanding of imperialism is as an economic phenomenon specific to capitalism. Lenin famously described Imperialism as the highest stage of capitalism. The crises in imperial core countries, such as those of Europe and North America, can be set back by exporting capital, via investment, to countries of the imperial periphery, also commonly known as the Third World, or Global South. Here there is an abundance of cheap land’, labour, and resources, allowing for rates of profit that would be unfeasible in the core, and thus allowing capitalism a brief return to profitability.

As this develops, the monopolies of the core begin to form national blocs, as their governments help to secure these investments through diplomatic, economic and military means. In sharp contrast to protectionist economic policy in the core, 'free trade' policies are foisted onto the peripheral nations, which allows the monopolies to pillage their natural resources and pay the workers poverty wages. The national blocs jostle with one another for profits and territory, heightening tensions to the brink as each seeks to expand their empire at the expense of another.

Modern Imperialism

The massive destruction caused by the world wars, the lowering of exchange rates, and the lowering of wages affected by fascism, created the conditions for capitalism to return to profitability. Postwar capitalism is characterised by a number of historical developments, briefly summed up as:

  • Many formerly colonised peripheral nations gaining ‘sovereignty’.
  • Capitalist globalisation and the rise of the TNC (Trans-National Corporation).
  • The USA becoming the dominant imperialist power.

The end of territorial occupation (excluding ongoing strategic military occupations such as those in Chagos and Iraq) as the main method by which the core (imperialist entities such as America, Europe and Japan) exploits the periphery, marks, for liberal pundits, the end of the imperialist era. However, even until today, the old scars remain, and the wounds are still being inflicted. Many peripheral workers find themselves working for the same capitalists as before, for similar poverty wages. Any who seek to reap the benefits of their labour in the core are kept outside by force, through strict border regimes such as ‘Fortress Europe’ or the US-Mexico border wall. Countries whose governments instead seek to take hold of their own economy are subject to brutal regime changes such as those in Iran, Indonesia, Korea, Burkina Faso, The Congo, Guatemala, Chile, Afghanistan, and countless others.

Imperialist nations achieved this level of hegemonic military control through a strategic alliance formed in the face of socialist opposition. The latter centred around China and the USSR, who gave their support to national liberation movements worldwide. The imperialist hegemony crystallised around the dominant Imperialist power, the USA, through organisations such as NATO and the private weapons industry, which continue to incite and fund wars to this day.

Financial globalisation has given rise both to tax havens, which ensure that any unethical or extortionate investments are kept confidential; and organisations such as the IMF and World Bank, notorious for offering financial aid to poor nations in exchange for enforcing harsh austerity policies, palatably known as structural adjustment programs. These exist solely to protect and enforce the same capitalist super-profits that were extracted during the classical colonial era.

Today's Crisis

With the fall of the USSR, capital had free reign once again, the contradictions of which would eventually culminate in a financial crisis of a global scale in 2008. Since then, investment has dried up completely, and imperialist governments have resorted to a frenzied tactic of quantitative easing (printing money) to shore up the productive sector against the drought throughout the 2010s. This development has also brought about a redivision of the world economy between Imperialist blocs, and a return to the era of inter-imperialist competition, sabre-rattling, and greyzone warfare that preceded the world wars. The UK has most significantly felt this fragmentation through Brexit.

In 2021, the crisis of the productive sector has caught up, brought ahead by the slowdown in GDP caused by the COVID-19 pandemic. Of all the roads by which capitalism staved off its crises before, none are viable today. This could be done before by exporting capital, however today there is nowhere left to export to. Capital can no longer increase the productivity of labour other than with full automation, at which point capital, with no labour power to exploit, will have abolished itself. Driving wages below subsistence level cannot be done without inciting a class war, as the working class acts in its self-defense. The only remaining option is war, which, at the current stage of nuclearised military development, would guarantee total global destruction. To add to this, capitalism has run into the natural barrier of the earth's finite resources, accelerating unobstructed through the Earth's 6th mass extinction event.

In the current, final, capitalist crisis, intercontinental missiles soar overhead while the resources of the earth fall away from beneath our feet. The crisis is unique, in that it is the first one from which there is no capitalist road out. As Rosa Luxemburg famously wrote in 1916; "Bourgeois society stands at the crossroads, either transition to socialism, or regression into barbarism".

More recently, as Cuban revolutionary leader Raúl Valdés Vivó put it, the only way forward is to "begin the transition to a communist mode of production… Either the peoples will destroy the imperialist power and establish their own or the end of history. It is not ‘socialism or barbarism’, but socialism or nothing.”

We must take heed of these words, and organise accordingly.

Further Reading:

  • ‘Imperialism’ by Lenin.
  • ‘Imperialism in the 21st Century’ by John Smith.
  • ‘The Wealth of (Some) Nations’ by Zac Cope.
  • ‘History is Marching’ by Prolekult.
  • '2020: Capitalism's Final Crisis’ by Red Fightback.

The next article in our Capitalism 101 series, ‘Socialism’, will explore what changes we might see to the economy and society under a socialist state.

Find the introduction to the series here and all the posts in the series here.