international socialism_ the state and capitalism today

7/27/2019 International Socialism_ the State and Capitalism Today

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9/24/13 International Socialism: The state and capitalism today

www.isj.org.uk/index.php4?id=234 1

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


12/42



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


13/42



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


14/42



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


15/42



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


16/42



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


17/42



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.


18/42



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


19/42



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

international socialism_ the state and capitalism today

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