This essay is featured in Rosa Remix, which will be released by the Rosa Luxemburg Stiftung’s New York Office on September 8.
Rosa Luxemburg’s great work displays extraordinary merits. First, she explained key dimensions of the capitalism of her time in an exemplary application of Marxian economics. Second, she integrated foreign trade and imperialism into economic theory further and with more insight than most economists including Marx had yet done. Third, she showed the powerful insights available by using Marx’s basic value and price concepts: a remarkable testimony to the usefulness of the labor theory of value. Finally, she linked her theoretical work to the strategic concerns and debates of the workers’ movements of her time. She took sides with an open honesty rarely equaled since among economic theorists who sell themselves instead by pretending to be “scientists above politics.”
To recognize and honor those achievements in The Accumulation of Capital, first published in 1913, let us carry forward her kind of analysis. That is particularly appropriate because capitalism’s current historic global shift is seriously underappreciated. From its start as the prevalent economic system in eighteenth–century England, capitalism spread to Western Europe, North America, Japan and, from those places, eventually to the rest of the world. Until the 1970s, capitalism concentrated its factories, offices, warehouses and stores in its old centers: Western Europe, North America and Japan.
The Expansion of the Hinterlands
Around the old centers were areas called hinterlands. At first these were the rural areas just beyond the towns and cities where capitalism concentrated its enterprises. Hinterlands provided raw materials, food, migrants moving into towns for jobs, and markets for capitalism’s output commodities. With increasing urbanization coupled to industrialization, the hinterland had to expand. Colonialism and imperialism globalized the hinterlands.
By the 1970s, the world had been divided into a core center — actually what we call the old centers plus a few of their colonial settler outposts — and a periphery. Extreme differences in economic development, standards of living, and so on, separated them. The development of capitalism in the old centers had produced a working class able to struggle and win the higher wages needed for a rising standard of living. This had not been possible in the far larger, more dispersed, culturally diverse periphery. By the 1970s, capitalism had produced an extremely unevenly developed world economy — the global parallel to the usually unequal developments inside countries, regions and cities (nicely illustrated in Mike Davis’ Planet of Slums).
Capitalists in the center had a set of “eureka” moments in the 1960s and 1970s. The more competitive among them recognized an opportunity opened up for them by capitalism’s uneven development. Newly installed jet travel rendered every spot on the planet accessible within a few hours. Modern tele-communications allowed corporate executives to monitor and control workers in factories, offices and stores thousands of miles away as easily as earlier they had controlled the lower floors from the top floors of their business buildings. Likewise by the 1970s, the people and governments in the countries defined across the periphery were desperate for jobs, finance, infrastructure and enterprises needed to reverse their centuries-old “underdevelopment.”
Thus in the 1970s a profound new economic deal was struck. Capitalists from the old centers wanted cheaper labor and fewer regulatory constraints than were obtainable there. They could get what they wanted by relocating factories, offices and eventually stores to the former hinterlands, the former periphery — the desperate-for-development economies of China, India, Brazil, and so on. The latter would provide cheap labor and few restrictive regulations. The old-center capitalists who first risked their capital to make such moves reaped the kinds of profits that turned many others into devoted followers.
Global Relocation and the Transformation of Capitalism
Capitalism’s historic and ongoing global relocation began by focusing on manufacturing. Now it includes services as well. Leading capitalists abandoned their old centers to create more profitable new centers with local capitalists and their governments as partners. Social transformations that took centuries elsewhere have occurred in these new centers in just a few decades — out of extreme poverty, from rural to urban, and from agricultural to industrial. The consequences for capitalism’s old and new centers are barely beginning to be understood.
Capitalism’s global relocation both followed from and exacerbated a sudden increase in the supply of labor-power pouring into capitalism’s orbit. Hundreds of millions of workers, formerly kept out of the modern capitalist labor market (by poverty, underdevelopment, political isolation of countries, etc.), were suddenly brought into it. Desperate for jobs and long used to low standards of living, they accepted wages much lower than capitalists had been paying in the old centers. In Marx’s terms, the price of labor power fell far below its value. Capitalists flocked from the old centers to take advantage of the opportunity created by the sudden imbalance in the supply relative to the demand for capitalist employees. Capital proved globally mobile while labor remained less so, as evidenced by the much more limited, although significant, increase in immigration to the old centers.
Excess supplies work to the advantage of the buyers as opposed to the sellers of labor-power. Wages go down, profits rise and economic inequalities deepen. Marx’s economic theories then ask a question unknown in conventional economics: Will the low price of labor-power rise back up to the value of labor-power, or will the value of labor-power descend to the lower price? Labor will seek to drive up the price toward the value of labor-power, while capital will seek to depress the value toward the price. The outcome, for Marx, depends on the comparative levels of political organization, cultural persuasion and social force that labor and capital bring, respectively, to this struggle.
Moreover, the struggle is now worldwide due to the increasing globalization of the market for labor power. Real wages have been stagnant to declining since the 1970s across the old centers of capitalism, whereas they have been rising in capitalism’s new centers. This suggests that prices of labor-power are rising toward values of labor power in the new centers while exactly the opposite transpires in the old centers. Their possible convergence at some in-between point of equivalence will last only until the inevitable new disruptions of that equivalence occur.
In any case, that in-between point means a broad decline in labor’s share of total output will attend capitalism’s global relocation. It already has deepened levels of income and wealth inequality within capitalist economies in both old and new centers (although not between them). There is abundant empirical evidence for all this. Thomas Piketty’s 2013 work Capital in the Twenty-first Century is the best source for the statistics, although his arguments for why it happened and what to do about it are not mine, nor are they consistent with Rosa Luxemburg’s or Marx’s work.
The Political Question Par Excellence
In capitalism’s old centers this historic relocation of capitalism has created widespread feelings of abandonment. The system that demanded and won mass loyalty is leaving and taking with it — or so it feels to many — the regular wage increases, job securities and benefits that were once thought guaranteed to capitalism’s great and growing “middle classes.” In the nineteenth and twentieth centuries, capitalism in the old centers compensated its often militant working classes for ever higher exploitation by rising real wages and improving job conditions.
Since the 1970s, capitalism offers that deal only to the people in its new centers. It offers long-term stagnation or decline in real wages and working conditions to the vast majority of the working classes of the old centers. Thus the political question par excellence in the old centers: As working classes there grasp and digest what capitalism now offers them, will they accept so inferior a deal compared to what they became accustomed to during the previous century? Parallel questions will gnaw at social stability in the new centers, where rapid capitalist development is generating even more glaringly grotesque inequalities and instabilities.
As capitalism’s center and periphery change places after 250 years, the process and its outcomes could well destabilize the whole system. Depending on how the critics of capitalism — enlarged and emboldened by the rapid growth in their numbers and understanding — intervene, they might convert destabilization into systemic change
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