The theory of monopoly capital and the supposed end of competition

Argentine economy

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The theory of monopoly capital and the supposed end of competition

Juan Kornblihtt

Traducción de Leonardo Kosloff

It’s almost commonplace to lay blame on the big monopolies of being the cause of the evils provoked by capitalism. In this article, we will discuss this idea. Not because the capitals with the highest concentration deserve any defense, but because the idea that their power resides in their monopolistic character leads to confusions regarding the functioning of capitalism, and, in large measure, how to combat it. The North-American economist Paul Sweezy is one of the most influencing intellectuals in Marxism and the one who gave theoretical justification to the idea that the domination of monopoly capital replaced competition [1]. His theories are present in a large number of traditional parties of the left in all their variants, from Maoists to Trotskyists. The debate could seem minor and be reduced to subtleties. Nevertheless, what is being hidden behind attributing the handling of the economy to the monopolies is the absolute transformation of Marx’s theory: the end of competition between capitals implies, in the last instance, to forget the theory of value. A position which is against the data afforded by reality: permanent increase in the productivity of companies to win markets, the disputes through price lowering for different products, the persistence of various companies including in those branches with the highest concentration, and the historical tendency of the falling rate of profit.

FAREWELL COMPETITION

Marx pointed out that in capitalism, contrary to other modes of production, exploitation is realized in economic and not in directly political form and that this was the key to the competition between capitals. Starting from the phase of primitive accumulation and that of the bourgeois revolutions, there had taken place an expropriation of the means of production resulting in those who owned them, on the one side, and the workers, on the other. Given that they are all formally equal in the eyes of the law, the bourgeoisie cannot appeal to the extraction of the surplus product with brute force as it occurred under feudalism. It is the market which presents itself as the great articulator of society. Companies sell their commodities and workers, their capacity to work. The great discovery of Marx was that behind the buying and selling, apparently egalitarian and democratic, was hidden the expropriation of wealth by the bourgeoisie. The workers sell theirlabor power for its value, that is, the socially necessary labor time to reproduce themselves and their families. Thus, the capitalist, by acquiring this labor power, obtains, gratis, a labor greater than what he or she was paid for. It is there where surplus value is originated. But the capitalist cannot sit awhile, they must sell the commodity to obtain the profit produced by the worker. That is to say, he must return to the market. There, they find they are not alone and must compete against other bourgeoisies in the same situation, to settle who sells the most. To win, the key is to make the product as cheap as possible. Therefore, the capitalist does not set the price whimsically. This must be lesser than that of their competitors, but proportionally greater or equal to the time to produce the commodity. In this way, competition forces them to impel the reduction of time which takes to produce each commodity by way of an increase in productivity. By doing this, they sell the commodities cheaper although above their cost, thus obtaining a larger profit rate than their competitors. But this cannot last because new investors will invest in the production of the same commodity with the same or a better technology, precisely because they are attracted by that higher profit. This forces all of them to lower the price to the limit of its value, the minimum which gives them the mean profit. This is the way Marx showed that competition was the mechanism by which prices were established and, in the last instance, how the law of value was expressed. The consequence is a permanent war between capitals in the hunting for profit. To achieve their goal, they must increase their productivity and at the same time destroy their competitors. This is the form in which a permanent development of the productive forces is produced with the concomitant reduction of the number of capitalists, due to the destruction or annexation between themselves. This process was synthesized as ‘concentration and centralization.’ [2]. The whole of capitalism is sustained, therefore, in a structure of competition between capitals. As we pointed out, this competition develops in a process of permanent war. A process which, by the end of the 19th century and beginnings of the 20th, expressed itself with more virulence, leading to the rise of movements propelled by the very relegated sector of the bourgeoisie which seeks to avoid their own destruction by larger companies. Marxism, influenced by this climate of the epoch, nurtured itself by numerous investigations promoted by the weaker bourgeoisie and saw in the new larger corporations the end of competition and the coming of monopoly as a qualitative change in the dynamics of capitalism. In the classical authors, like Lenin or Bukharin, this change was trying to be reconciled with the law of value, but it will be Sweezy who will take the logical conclusions to their extreme.

FAREWELL VALUE

Sweezy, along with Paul Baran, in their book ‘Monopoly Capital’, elaborated an explanation of an economy dominated by monopolies. According to their hypotheses, when competition reached its limit, each individual firm could set their prices without limits, beyond the constraints of demand. Unless they had an altruist spirit, the capitalists would not lower their prices any longer; on the contrary, they would raise them in a permanent way, only limited by consumption. The result is that the determination of prices by value would be annulled. This would then break up with what Marx called the exchange of equals. For Marx, there is no robbery in the market, but buying and selling of commodities for their value. With monopoly, this would end, as would end also the extraction of profits through the extraction of surplus value. On the contrary, for Sweezy the monopolists could obtain more returns by applying the direct force granted to them by their monopolistic presence in the market. Thus, he developed a theory of surpluses which would replace surplus value: “…we prefer the concept of surplus to the traditional one of surplus value from Marx, because the last one is probably identified, in the minds of the majority of people familiarized with the economic theory of Marxism, with the aggregate of utilities, interests and rent.” [own translation, LK] [3] The concept of surplus implies an extra-economic extraction by the countries where the monopolies resided from the less developed countries through imperialism, but without referring to human labor as their principal source. This implies a fundamental change: the end of economic exploitation, replaced by an extra-economic exploitation, ruled by political power in a direct way though the looting of riches. The disappearance or attenuation of competition implies, for Sweezy, another logical consequence: the end of the drive of capitalists to innovate. Without any pressure to lower their prices, there is no pressure to reduce the time of production. Therefore, technological change is no longer immanent to the dynamic of capital and is reduced to the desires of the capitalists: if they want more profits, they will innovate (as long as the costs of the new technology are not greater to the profits they obtain.) With the end of value, there would also be an annulment of the tendency of the profit rate to fall, provoked in the increase of technology which replaces human labor. With innovation finished, a stage of chronic stagnation begins where the economy is increasingly regulated by monopolies. This does not lead to a planned society, but crises are attenuated. These conclusions opened the doors to reformist positions, with the illusion that, by limiting the power of monopolies there could be a capitalism “for everyone”, both for workers and for small and medium industrial capitals.

FAREWELL SCIENCE

As Sweezy himself acknowledged, the concept of monopoly capital was constructed as an ideal model [4]. The problem is that empirical studies show that the conditions of monopolistic domination are not realized and even less, their consequences. In the first place, the supposed centralization of capital is not absolute. On the contrary, if we take the principal branches of production, as for instance the automotive sector, we can observe that there is a strong and permanent competition between different makers on a global scale. A similar situation can be observed in the metal or food industries. There are thousands of examples. Even in those braches in which there is a consolidation of monopoly, the tendency is that, after a determinate period, this later disappears. For example, the telephone service in Argentina counted with monopoly rights established by the state, after privatizations. However, with these high profit margins, cellular telephone companies appeared which impelled competition mocking the monopoly. Neither can we observe an absolute increase in prices, another strong premise of Sweezy. On the contrary, a large number of products cost less than in the past. It suffices to look at the price of computers, or even more those of cell phones just a couple of years ago. There are increases of prices in certain raw materials or oil, where in effect there are monopolies of the land, but not in the average of industrial prices. The lowering of prices leads us to observe what is happening with productivity and verify if (socially necessary) labor time still determines prices, as Marx said, or if one must look for an explanation elsewhere. In this aspect, investigations show that the stagnation in investment prognosticated by Sweezy does not hold. Different researchers have measured the increase in productivity in terms of the incorporation of machinery, which in effect can be verified not only in the general measures of the global economy [5], but also in the study of particular braches of production. For example in the production of shoes, candy, textiles, flour or metals show transformations in the production process with the objective of reducing the portion of living labor and increasing relative surplus value. This increase in productivity questions the chronic stagnation. This can be verified by observing the evolution of the profit rate. Monopoly for Sweezy implied a stoppage to its fall. However, the increase in machinery over human labor impelled a tendency to its fall from the 50’s to today of more than 50% depending on the measurement one takes. [6] Empirical investigation shows that the idea of domination by monopoly capital must be questioned. It can exist in certain braches, at certain moments, but it does not explain the dynamic of capital. And yet, it has been assumed by a large part of the left without questioning. This is foreign to Marx’s scientific method, for it substitutes investigation of concrete conditions of capital accumulation by a mechanical utilization of ideal types, only supported by authoritative quotes. On the contrary, what a program for revolution requires is the scientific analysis of the reality in which one is to intervene.

Notes:

[1] See Baran, Paul y Paul Marlor Sweezy: El capital monopolista, Siglo XXI, Buenos Aires, 1969.
[2] See: Shaikh, Anwar, Valor, acumulación y crisis, Buenos Aires, Ediciones ryr, 2007 or Marx, Karl: El capital, Siglo XXI, México, 1998.
[3] Baran y Sweezy: op.cit., p. 13, footnote nº 6.
[4] Sweezy recognizes the Weberian influence in his methodology before any Marxist ones: “Mediante la construcción y análisis de modelos de segmentos o aspectos de la realidad que se estudia se llega aquí a una comprensión científica. El propósito de estos modelos no es reflejar la imagen de la realidad, ni incluir todos sus elementos en sus medidas y proporciones exactas, sino más bien separarlos. (…) El modelo es y debe ser irreal en el sentido en que la palabra se usa más comúnmente.”, Baran y Sweezy, op. cit., p. 17.
"Through the construction and analysis of models of segments or aspects of the reality which is studied, a scientific comprehension is attained. The purpose of these models is not to reflect reality, nor to include all elements in its measurements and exact proportions, but rather to separate them. [...] The model is and must be unreal in the sense in which the word is commonly used." [my own translation, LK]
[5] See, among others, the measurements by Shaikh, Anwar: op. cit., p. 448 or Gerard Dumenil en http://www.jourdan. ens.fr/~levy, para los EE.UU. For measurements which can be observed, although in smaller scale, for the Argentine economy, see: Iñigo Carrera, J. La formación económica de la sociedad argentina, Imago Mundi, Bs. As., 2007.
[6] See Shaikh, Anwar: op. cit., p. 450 y Moseley, Fred: "The Marxist theory of crisis and the post-war US economy", en Razón y Revolución n° 14, primavera 2005.