Labour Aristocracy: mythmakers and their mistakes / FRFI 195 Feb / Mar 2007

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 FRFI 195 February/March 2007

The US Solidarity website1 carries a recent article by Charles Post attacking what he calls ‘The Myth of the Labour Aristocracy’, originally published in Against the Current. It is worth examining because the article has been reposted all over the place and much of the response, even when critical, is clearly dazzled by the parade of numbers supposedly ‘refuting’ or ‘demolishing’ the theory. In fact, the article simply repeats familiar bourgeois criticisms and its numbers are just plain wrong.

According to Post, Lenin’s theory of the Labour Aristocracy, which holds that a privileged section of the working class is essentially bribed by imperialism and is the main social prop of the ruling class, ‘is not a theoretically rigorous or factually realistic explanation of working-class reformism or conservatism’. There are supposedly ‘grave empirical problems with Lenin’s claims that higher wages for a significant minority of workers in the imperialist countries comes from the super profits earned from the exploitation of lower paid workers in Africa, Asia and Latin America.’ A negligible amount of capital (1.25% according to Post) goes to what Post calls ‘the South’. The profits that come back are mostly made in what Post calls ‘the North’. Therefore ‘only 2-3% of total US wages in the 1990s could have come from profits earned in Africa, Asia and Latin America’.

Any benefits of imperialism are enjoyed by the entire US working class, according to Post:

‘Imperialist investment in the global South benefits all workers in the global North – both highly paid and poorly paid workers. Higher profits and increased investment mean not only more employment and rising wages for “aristocratic” steel, automobile, machine-making, trucking and construction workers, but also for lowly paid clerical, janitorial, garment and food processing workers.’

Therefore the entire working class in the imperialist country is a Labour Aristocracy which

‘includes poorly paid immigrant janitors and garment workers, African-American and Latino poultry workers, as well as the multi-racial workforce in auto and trucking.

If everybody is in the privileged Labour Aristocracy, then there is no privilege and no Labour Aristocracy. If there’s no Labour Aristocracy, there’s no significant split in the labour movement, no opportunism and the ‘real’ struggle is not about imperialism, but is the struggle of workers in unions around economic issues.

Post’s numbers
In fact it is Post, not Lenin, who suffers from ‘grave empirical problems’. According to Post:

‘Imperialist investment, particularly in the global South, represents a tiny portion of global capitalist investment. Foreign direct investment makes up only 5% of total world investment – that is to say, 95% of total capitalist investment takes place within the boundaries of each industrialized country.’

This would mean, against Lenin, that the export of capital is not that significant. If Post is correct, it’s just a peripheral activity: the real action is each country’s capitalists exploiting ‘their’ workers.

Table 1

US FDI as share of total US direct investment ($ billions)2

 

1998

1999

2000

2001

2002

2003

Private non-residential investment
plus US FDI abroad
 less foreign FDI in US


1,052.6
142.6
–147.9


1133.9
224.9
–220.3


1232.1
159.2
–236.7


1176.8
142.3
–60.0


1066.3
154.5
–34.4


1077.4
149.9
–30.4

Total US direct investment

1,047.3

1,136.6

1,154.6

1,259.1

1,186.4

1,196.9

US FDI % of total direct
investment

13.6%

19.8%

13.8%

11.3%

13%

12.5%


But when we look at the numbers for foreign direct investment (FDI), Post gets his facts wrong (see Table 1). We see, very clearly, that the proportion of direct investment abroad is far higher than Post’s 5%, varying from 11% to almost 14% or higher in recent years. We can see, as Lenin says, export of capital is significant, much more significant than Post allows.

Post got the proportions wrong by a factor of two or three. What about its location? Post continues:

‘Of that five percent of total global investment that is foreign direct investment, nearly three-quarters flow from one industrialized country – one part of the global North – to another. Thus only 1.25% of total world investment flows from the global North to the global South.’

Later, Post casually mentions that profits ‘earned abroad’ reached over 30% of total US profits in 2000. If just 5 percent of investment can produce 30 percent of the profits, that immediately contradicts Post’s argument and supports Lenin’s. It seems that Post himself has a problem with ‘theoretical rigour’ as well! Let’s look at the actual figures and find where Post makes his mistakes (see Table 2).

Table 2

US FDI in imperialist and dependent countries ($ billions)3

 

1998

1999

2000

2001

2002

2003

Total FDI
Imperialist countries
 Dependent countries

142.6
90.0
52.6

224.9
131.3
93.7

159.2
91.8
67.4

142.3
91.8
72.5

154.5
93.8
60.7

149.9
88.7
61.2

Imperialist as % of
total FDI

63.1%

58.4%

57.7%

49.1%

60.7%

59.2%

Dependent as % of
total FDI

36.9%

41.6%

42.3%

50.9%

39.3%

40.8%

Dependent as % of
total US direct investment

5.0%

8.2%

5.8%

5.8%

5.1%

5.1%

Post significantly overestimates the proportion of FDI going to the imperialist countries and underestimates the amount of total US direct investment going to the dependent countries by a factor of four or more.

We need to go much further than this to understand what is really going on. First, Post excluded all US foreign investment apart from FDI, without explanation. Yet, for Lenin, a key characteristic of imperialism is finance capital, which Post completely ignores in his article.4 When we do include it, this more than doubles the amount of US foreign investment (see Table 3).

Table 3

Total US foreign investment ($ billions)5

 

 

 

1998

1999

2000

2001

2002

2003

2004

2005

Total foreign investment
 Imperialist countries
 Dependent countries

346.6
219.7
126.9

515.6
323.9
191.7

559.3
339.2
220.1

377.2
253.4
123.8

291.3
188.6
102.7

328.5
292.3
36.2

872.3
521.4
350.9

446.4
241.1
205.4

Dependent as %
of total foreign

36.6%

37.2%

39.4%

32.8%

35.3%

11.0%

40.2%

46.0%

Total FDI as % of
of total foreign

41.2%

43.6%

28.5%

37.7%

53.0%

45.6%

(28.0%)

(2.0%)

Total US foreign investment includes not only FDI, but also indirect investment, mostly financial. In recent years, FDI has varied between 28.5% and 53% of total investment. In the flow of all US foreign investment, the dependent countries generally receive upwards of one third.

To sum up, we have the following empirical results, which completely corroborate Lenin’s analysis of imperialism and totally undermine Post’s argument: very significant amounts of capital are exported from the US to other countries. Amongst these countries, the dependent countries figure very significantly. For Post, foreign investment is insignificant, and that going to the dependent countries is utterly marginal. For Lenin – and for US imperialism! – foreign investment is very important, and a significant amount of it is directed to the dependent countries to take advantage of low wages and other costs.

How big is the booty?
Even if Post gets his theory totally wrong and the numbers totally wrong, perhaps he’s right when he claims that the return on foreign investment is a trivial amount? After all, it’s not what goes out that really matters; what’s important is what capital brings back.

Imperialist booty returns to the plunderer by a variety of mechanisms. These include, obviously, return on investment and interest on loans. There are royalty payments and license fees for ‘intellectual property’ – payments for using someone else’s design or process. There are also ‘service payments’ for insurance and other services. In addition there are ‘transfer prices’, where a US company ‘buys’ intermediate or semi-finished parts or components below their full cost from a foreign subsidiary or partner, invisibly exporting profits made in another country. Then there is also the mechanism of unequal exchange, between imperialist and dependent countries.6 Because these profits are not realised until the commodities are paid for in the imperialist country, they eventually show up as ‘domestic’ profits, even though they are really part of the whole imperialist relationship.

How much are these? By their very nature, the effects of transfer pricing and unequal exchange are difficult to quantify. In the US in 2005, receipts on US-owned assets abroad came to $471.7bn.7 In addition there were $57.4bn in license fees and royalties, and a further $158.2bn in ‘other private services’, a total of $687.3bn. These are quite significant numbers. Compared to non-residential private fixed investment in 2005 of $1,265.7bn – they total about 50%. They represent a similar proportion when compared to corporate profits of $1,330.7bn. So they’re obviously very significant to the capitalists.

Since Post tries to minimise the significance of investment in dependent countries, let’s have a look at the geographic origin of these profits. Taking profits from foreign investment alone the following is found (see Table 4).

Table 4

Geographical origin of profits from foreign investment ($ billions)8

 

 

 

1998

1999

2000

2001

2002

2003

2004

2005

Total profits from
foreign investment
 Imperialist countries
 Dependent countries

255.8
128.7
127.0

288.0
149.1
138.8

344.2
177.8
166.4

281.8
143.8
138.0

264.5
138.9
125.6

295.6
155.8
139.8

369.0
192.3
176.7

469.0
239.9
229.1

Dependent as %
of total foreign

49.7%

48.2%

48.3%

49.0%

47.5%

47.3%

47.9%

48.9%

US domestic profits

654.7

674.5

615.4

584.7

681.9

744.1

880.5

992.7

Dependent as %
of domestic

19.4%

20.6%

27.0%

23.6%

18.4%

18.8%

20.1%

23.1%


First, we see that profits from US foreign investment in dependent nations is about half of all profits on US foreign investment. Second, compared to US domestic profits from exploiting workers in the US, the receipts from exploitation of the dependent nations is clearly very significant. This should not be surprising, for profit rates in these countries are higher. In the world outside the US, the dependent nations have 34.2% of the income,9 but contribute 48.9% of the foreign profits. The OECD countries, generally the beneficiaries of imperialism, have 65.8% of the income, but contribute 51.1% of US profits from foreign investment. Although the absolute contribution of imperialist and dependent countries to US foreign profits is almost evenly split, relatively, when compared to income, the dependent nations contribute at a rate double that of the imperialist countries. Lenin was absolutely right to emphasise the significance to imperialism of the exploitation of these dependent nations, where the rate of profit is generally consistently higher. This is the extraction of super-profits at work (see Table 5).

Table 5

Rates of return on US Foreign Direct Investment by area (%)10

 

2002

2003

2004

2005

All countries

8.1

9.8

10.7

11.1

Canada

8.3

8.9

11.0

9.9

Europe

7.9

9.4

9.4

9.8

Latin America and Other

5.8

8.3

10.1

11.5

Africa

12.0

17.6

22.0

23.1

Middle East

13.3

16.5

20.8

23.1

Asia and Pacific

10.7

12.1

13.7

13.6


These super-profits amount to some 10% or so of capital formation in these countries – and that’s just to the US and doesn’t include the booty carted off by European and Asian imperialists. Indeed, for Africa, the poorest continent, it has been shown that between 1970 and 1996, sub-Saharan countries were net donors to the rest of the world of up to $106.5bn. This takes the form of massive external indebtedness of the African states, which working people are expected to pay off, and massive private wealth of a handful of elites who deposit their wealth in imperialist banks and other assets.11

Another source of imperialist-related super profits is the exploitation of immigrant workers, a feature of imperialism noted by Lenin. In the US there are some 12 million undocumented migrants, most of whom have entered the US specifically to work and whose precarious residential status leaves them vulnerable to super-exploitation.

Although ameliorated, there continue to be racist disparities in access to jobs, in pay and working conditions between white and minority workers. These have their origin in forced immigration and slavery and are perpetuated by imperialism. These result both in super-exploitation of workers of colour and also the enjoyment of privileges by a Labour Aristocracy.

Then there is the prison-industrial complex. Pay rates for California prisoners are lower than those for workers in China. Prisoners provide a literally captive workforce. The Oregon Department of Corrections boasts in a marketing circular: ‘Benefits to you: Inmates show up each day clean, sober, and ready to work. No Immigration and Naturalization Service issues. You save money (including workers’ comp., insurance, sick leave, and other benefit costs).’12

Who gets the booty?
Post’s theory is wrong and the numbers for capital export and its location are wrong. But, there’s a sliver of hope left: Post’s argument is that super-profits are trivial compared to workers’ income and, anyway, are spread around amongst everyone.

There are 114.38m households in the United States.13 Just the profits from foreign investment, royalties and ‘other services’ of $687.3bn come to over $6,000 per household. With a median annual income of $46,326, that’s about six weeks’ income, 13% of annual income, when spread around equally. That’s quite a considerable sum, and is even larger in relation to a household receiving just $12,000-$20,000 – between 30% and 50%. This is before considering profits from unequal exchange and other sources of super-profits.

It is just ridiculous to pretend – as Post does – that these super profits benefit the entire working class equally. Unlike in Europe, where the working class wrested health and other social benefits through the state, US workers depend directly on their employer for these, and they are not distributed equally:14

• 23% of US workers are ineligible for paid vacation or bank holidays
• 29% have no access to healthcare insurance
• 54% no access to dental coverage
• 71% no access to vision coverage
• 40% no access to retirement benefits
• 48% no access to life insurance benefits
• 61% no access to short-term disability benefit
• 70% no access to long-term disability benefit

Not only are these benefits unequal, they are not distributed randomly amongst all sections of the working class. If we compare workers in small service companies,15 with workers in large manufacturing companies, we find that the service workers received $14.72 per hour,16 compared with the manufacturing workers’ $25.14 per hour. But when it comes to benefits, the service workers receive benefits of $4.83 per hour, while the manufacturing worker receives $15.28 per hour in benefits – more in benefits than the service worker’s wage.

The privileges of a Labour Aristocracy are not confined to wage rates or conditions at work. They relate to quality of life, hours of work, environmental racism, location and thousands of other factors big and small. We could continue to point to innumerable examples of privileges of all sorts enjoyed by the better-off section of the working class. Are these the result of imperialism? This is not a TV crime drama: it’s impossible to dye bank notes in Botswana or the Philippines or El Salvador, then find traces of purple ink on the hands of better-off workers in the US. What is obvious is that, without these super-profits, the US ruling-class, in order to increase its domestic profits to compensate, would not only have to attack the poorest sections of the US working class, but to slash the living standards of its privileged sections.

If anyone believes that all benefit equally from imperialism, they need to explain how that happens. What kind of equality is there between fully benefited skilled workers on the one hand, receiving $30-50 per hour, with two cars, living in a house they own in the suburbs, and a single mother on the other, an undocumented worker, holding down two unbenefited part-time jobs receiving a sliver above minimum wage, living in an apartment in a rundown project? How are they ‘equally’ sharing in the super-profits from imperialism?

It’s impossible to satisfy empirical critics of the Labour Aristocracy theory. They demand a level of proof that they cannot supply themselves. None of them would be able to ‘prove’ with numbers that ‘the working class’ is exploited. Yet, when it comes to the privileges of the Labour Aristocracy, different and higher standards of proof apply.

Post refers to several econometric studies, to try to prove that monopoly capital is no different from competitive capitalism, that there is no such thing as super-profits. All they prove is that Post doesn’t understand Lenin’s theory of imperialism or what the Marxist theory of monopoly is. Yet these same studies consistently emphasise that Post’s favoured explanation of privilege – trade union struggle – doesn’t explain why privileges exist where there are no trade unions. Facts, such as the split in the AFL-CIO and the mobilisation of millions of immigrant workers against the state, outside the trade unions, which provide blatant ‘proofs’, of momentous historic proportions, of the existence of a Labour Aristocracy, he simply ignores. There are none so blind as those who will not see.

Post’s capitalism
Having discarded Lenin’s imperialism what does Post’s capitalism look like?
First, there is no fundamental difference between imperialist nations and dependent ones. Where Lenin saw ‘booty’ ‘plundered’, Post sees ‘profits earned’. The social relation of exploitation is replaced by a merely geographical one: Post writes evasively about ‘the North’ and ‘the South’ as if they meet on equal terms, although, as we have seen, the dependent ‘Southern’ countries are bled by ‘Northern’ imperialism.

Second, there is no need for inter-imperialist rivalry. With no external super-profits at stake, preoccupied with exploiting ‘their own’ working class, there is no imperative for capitalists to divide the world, no need for imperialist war, no need for US imperialism to invade Iraq.

Third, divisions within the working-class are not due to mechanisms of imperialist based privilege. Instead, Post has to explain them in terms of inherent differences in birth or biology: ‘race, nationality and gender structure the “employment queue” … race, nationality and gender do generate a stratified working class’. For Marxists of course, it is completely the other way round: it is the mechanisms of privilege which create ‘race’, nationality and gender inequality: ‘A Negro is a Negro. Only under certain conditions does he become a slave’, as Marx famously remarked.17

Fourth, where Lenin blames the poverty and misery of working people in the dependent nations on imperialism, if there is no extraction of super-profits, then some factor inside the dependent nations must cause their underdevelopment. There would have to be some deficiency in the populations of ‘the South’, whether inherent or culturally based, which prevents them from following in the brisk footsteps of ‘the North’. Post doesn’t get this far, but provides no explanation of why dependent countries remain poor.

Fifth, capitalism benefits workers. According to Post:

‘Higher profits result in more investment across the board in the industrialized countries. More investment eventually brings a growing demand for labor (within limits set by investment in newer, more capital intensive technology), falling unemployment and rising wages for all workers in the industrialized capitalist countries.’

But this is exactly what the ruling class says! In fact, to Marxists, Post’s argument has a very familiar ring:

‘The more quickly the capital destined for production – the productive capital – increases, the more prosperous industry is, the more the bourgeoisie enriches itself, the better business gets, so many more workers does the capitalist need, so much the dearer does the worker sell himself.’18

This is, of course, the age-old argument of the bourgeois economists, which Marx demolishes in his short pamphlet Wage Labour and Capital! It’s as if Post copied the bourgeoisie’s argument almost directly from Marx! Of course, for Marx, ‘We must not even believe them when they say that the fatter capital is, the better will its slaves be fed’. As he shows, the real consequences are increased competition among workers and a fall in wages. Post, absurdly, acknowledges this later, absentmindedly contradicting himself, when he says: ‘Real wages for US workers, both union and non-union, have fallen to about 11% below their 1973 level.’

Sixth, there’s no exploitation. In his enthusiasm for the benefits of capitalism, Post ‘forgets’ that capital never ‘employs’ workers:

‘Capital does not consist in the fact that accumulated labour serves living labour as a means for new production. It consists in the fact that living labour serves accumulated labour as the means of preserving and multiplying its exchange value.’19

Where Post sees capital ‘earning’ profits, increasing employment and raising wages, Marx sees only exploitation and crisis. Capital is not a thing – the ‘investment’ which ‘employs’ – but a social relationship of exploitation.
For Marxists, capital oppresses not only those directly ‘employed’ by it, but also, by creating a reserve army of labour, the unemployed as well. Capital worms its way into every crack, turning them into fissures. Capital creates divisions where there are simple natural or social differences between people: – skin colour, religion, gender, cultural background, education, language, age, sexual orientation, national origin. It is only natural that Post – who finds capital so benevolent – should believe the same about imperialism.

Imperialism and communism
So where does this end up politically? This issue is not purely economic, although its roots are economic. Nor is it simply tactical. It’s not over some abstract theoretical issue. This goes right to the heart of modern politics. It’s very simple: do we need to be communists?

It was not just Lenin who subscribed to the theory of the Labour Aristocracy to understand the relationship of the working class to imperialism. So did Nikolai Bukharin, Amilcar Cabral, James Connolly, Georgi Dimitrov, Antonio Gramsci, C L R James, Bela Kun, Georg Lukacs, José Carlos Mariátegui, Karl Radek, M N Roy, Liu Shaoqi, Josef Stalin, Leon Trotsky and Clara Zetkin. Heroes or demons, martyrs or traitors, love them or hate them, however they ended up, they all came from the same political tradition: classic communism, forged in the struggle against opportunism in the split in the international working class over the imperialist world war of 1914-1918, a split which had its origins in the existence of the Labour Aristocracy. If there’s no such split today, then communism is archaic, a historical peculiarity, the need for which has been superseded in some way. In our next instalment, we’ll explore where Post ends up as he saunters down this road.

Steve Palmer
US correspondent

1 www.solidarity-us.org
2 In order to get a figure for total industrial investment by US capitalists, we have taken the figures for ‘Gross private fixed non-residential investment’ in the GDP tables and, from the Balance of Payments tables, added/subtracted the figures for FDI outward and inward, respectively. We have omitted figures for 2004 and 2005 because a one-off tax break, encouraging repatriation of retained profits, distorts the numbers.
3 ‘Imperialist countries’ are EU, Canada and Japan. The figures are taken from US International Transactions Accounts country and regional data publicly available at www.bea.gov.
4 See David Yaffe: ‘Britain: Parasitic and Decaying Capitalism’, FRFI 194, www.revolutionarycommunistgroup.com/frfi/194/ for a full discussion of Finance Capital and the role of Foreign Direct Investment. (FDI), especially p8.
5 Source: US International Transactions Accounts country and regional data at www.bea.gov. The 2003–5 figures are accounting distortions from normal for FDI, due to the one-off tax break. But the fact that the capitalists give themselves a tax break should alert us to how important these profits are to them.
6 ‘The richer country exploits the poorer one, even where the latter gains by the exchange’. Marx, Theories of Surplus-Value, Works, 32, p294. Marx has an example of trade between Europe and Asia, Capital 3, Works, 37, pp149–50. See also Henryk Grossmann, The Law of Accumulation and Breakdown of the Capitalist System, London, 1992, pp169–173.
7 There are slight differences in some of these figures between National Income tables and Balance of Payments tables because of different treatment of ‘US Territories’, in particular the colony of Puerto Rico.
8 Source: US International Transactions Accounts country and regional data at www.bea.gov.
9 Source: World Bank, World Development Report Selected Indicators, 2005
10 Calculated from Bureau of Economic Analysis data, using the standard technique described in US Department of Commerce, Survey of Current Business, September 2006, p 91, Table 1, note 1.
11 See James K Boyce and Léonce Ndikumana, ‘Is Africa a Net Creditor? New Estimates of Capital Flight from Severely Indebted Sub-Saharan African Countries, 1970–1996’, Political Economy Research Institute, University of Massachusetts, Amherst, 2001
12 Dan Pens, ‘US: Oregon's Prison Slaveocracy’, Prison Legal News, 1 May, 1998.
13 US Government Census – http://pubdb3. census.gov/macro/032006/hhinc/toc.htm
14 US Government Bureau of Labor Statistics, National Compensation Survey: Employee Benefits in Private Industry in the United States, March 2006.
15 The comparison is for 2006, 3rd quarter from BLS, ‘Employer Costs for Employee Compensation’. The comparison is between workers in service industry companies with less than 50 workers and workers in large (500 or more workers) ‘goods-producing’ companies.
16 For comparison, the pay of a regular supermarket worker, benefited, in the Bay Area is $8–$8.50 per hour.
17 Marx, Wage Labour and Capital.
18 Ibid.
19 Ibid.