AS

In order to talk about state intervention and labor organization, you first have to lay out the laws of gravity with which they have to reckon. If you believe that the system is founded on monopoly — which has become a sacred nostrum of Marxian economics — then it’s all about the power of the state and the power of capital against labor.

From my point of view, nothing — not even the capitalists themselves — has that sort of power, because the rules imposed on labor and capital stem from the creation of profit and the competition of capitals, which Marx specifically links to each other. A state can intervene to redistribute income and oppose both capital and labor. Pushed by the struggles of workers, it can also intervene to construct a welfare system. But these interventions are still fundamentally constrained by their impact on the profitability of firms.

Let me illustrate those limits by reference to Marx’s own argument about the reserve army of labor. He begins by asking: suppose growth is high enough that this reserve army of unemployed workers begins to dry up — what happens then? Labor markets will tighten, and wages will tend to rise, which is good for workers.

But if wages rise relative to productivity, then profitability falls, which accelerates the ongoing mechanization in firms and slows down overall rates of growth. The slowing recruitment of labor through growth, and the rising displacement of workers through mechanization, will then replenish the reserve army. These are feedback effects inherent in capitalist operations themselves.

I’ll give you another classic example. You can create employment by pumping up effective demand through state expenditure. In fact, this is what Hitler and Roosevelt did in the 1930s, and both governments were enormously successful in bringing down unemployment.

This might suggest that all the talk about profitability and the reserve army of labor is irrelevant. But when we look more closely, we can see that war conditions allowed both the Nazi regime and the Roosevelt administration to block the normal feedback effects: wages and prices were not permitted to rise, productivity rose dramatically, and interest rates were kept low. Hence the leap in deficit-financed demand and employment, which gave a significant boost to profitability and investments.

However, in the 1960s and ’70s, similar policies designed to stimulate growth stopped working after a while: profitability fell, unemployment returned, and inflation took off. Indeed, this can be predicted by using Marx’s theory of the reserve army of labor and the growth limits implied by his schemes of economic reproduction.

In other words, if you want to intervene in support of labor, then you have to choose between two options: you must either keep productivity rising faster than real wages (what I call the “Swedish example”), or prevent wages, prices, and interest rates from rising (by suspending the normal functioning of the market). That gives you some breathing room for a while, but if you don’t understand what you’re doing, workers end up paying the price! This kind of analysis explains the parameters or boundaries for struggle.