Capitalism’s New Economy, ICT


An article published in 2005 by the CWO, dealing with the ‘new economy’ of capitalism based on finance and services, using the UK as a case study.

Part One: The Decline of Manufacturing and the Rise of Services

The muted response from all quarters to the collapse of Rover underscores the widespread acceptance of manufacturing’s declining role in the UK economy. Working class indifference is symptomatic of the low level of resistance to attack by the present generation of wage workers. For the capitalist class it is a sign of their confidence that a predominantly service-based economy can deliver them higher profits and economic growth. Not so long ago the collapse of Britain’s “last domestically owned volume car manufacturer” would have been greeted with cries of despair about the declining competitiveness of the UK economy. Nowadays, however, that unfailing mouthpiece of capital, the Financial Times nonchalantly points out:

“In fact, economists argue that it is a waste of resources to tie up productive capital and skills in companies that cannot compete. Much better, they say, to allow the workers to move into jobs that create higher added value for the country. Helen Simpson, the director of productivity research at the Institute for Fiscal Studies, says about Rover’s likely demise: ‘Since the company is failing, the assets are not being used in their most productive way and they could potentially be put to better use elsewhere in the economy.’ Her argument is echoed at the Yale School of Management by Peter Schott, an expert in US manufacturing. ‘It is best for a country to employ its workers in the highest productivity endeavours’, he says, adding that it is a myth that manufacturing jobs are in some way better for an economy than those in services.”[‘Industrial Jobs Are Not Always Beneficial’, 13th April 2005]

What is interesting here is not that economists are endorsing the wind-up of Rover — we’ve heard enough about competitiveness and the ‘law of the market’ to expect nothing else — but that according to the new economic orthodoxy, ‘services’ are not only a productive part of the economy, they (or at least some of them) are reckoned to be more productive (to create ‘higher added value’) than manufacturing industry. Certainly — apart from the ‘human cost’ so close to a general election — the government is not particularly worried about the continuing decline of manufacturing industry to the tune of an estimated 600 jobs a day. On the contrary, an official government web site [albeit for a US audience] boasts that in the UK, which is “the world’s fourth largest economy and [which] has weathered the recent economic downturn better than any other G8 country. … The service sector accounts for about two-thirds of GDP…”. [1] Unsurprisingly, therefore, official UK statistics on the structure of the workforce show that of a total of just over 30 million jobs in December last year, more than 24 million are classified as some kind of service compared to manufacturing which accounts for 3.5 million jobs. [2]

Although the relative decline of manufacturing is particularly marked in the UK this is a universal trend throughout the advanced capitalist world. The same FT article mentioned above informs us,

“The decline in manufacturing is not just a British or US phenomenon. Even in Japan and Germany, traditionally seen as powerhouses of industrially driven growth, manufacturing is a much less significant generator of employment than before. Between 1980 and 2002 the share of employment provided by manufacturing fell from 25 per cent to 19 per cent in Japan and from 34 per cent to 24 per cent in Germany.”

It is a trend which is accelerating with the globalisation of production, essentially the transfer of manufacturing production and heavy industries such as shipbuilding to areas of cheap labour — a process which, along with the easing of restrictions on the movement of global financial capital, is part of the response of advanced capital to its crisis of the declining rate of profit. To the extent that the relative decline of manufacturing and primary industries in the richest capitalist economies is offset by their expansion in areas of the globe with cheaper labour costs and lower capital overheads then capitalism can hardly be said to have de-industrialised. To the extent that manufacturing industry in these areas combines the latest technology with cheaper labour power — this means even higher productivity (in capitalist terms, output per capita input per worker) and higher profits. In so far as this is achieved through direct foreign investment by the richer capitals then the decline of manufacturing at home is simply the consequence of the exploitation of cheaper labour power and the milking of a higher rate of profit abroad.

But this doesn’t explain the increasing proportion of the labour force employed in ‘services’ at home.

Marx on Services, Productive and Unproductive Labour

In the popular imagination — which instinctively equates the working class with those who do productive work and the latter with the manual labour involved in producing material goods — the steady decline of manufacturing and heavy industry reinforces capitalist propaganda, notably from not-so-New Labour, that the working class is a spent political force. For some leading social theorists the working class has ceased to exist altogether. Yet, we are told, a leaner, fitter, knowledge-based capitalism survives healthier than ever. We will leave the academic experts themselves to work on the conundrum of how capitalism exists without a working class. In the meantime it will suffice to remind ourselves that Marx defined the working class, not according to whether someone did manual or brain work, in factory, office or shop, but according to their relationship to the means of production. While the capitalists lives from profit, the working class are those people who depend on income from wage labour. Marx’s opposition to this situation wasn’t simply that it is morally unjust or inequitable but was based on the precise analysis of the source of the capitalists’ profit. He identified this as ultimately stemming from the unpaid labour represented by the value of the commodities workers have produced over and above the value of their wages.

Likewise, Marx had a consistent concept of what he meant by ‘services’ which, as we shall see, was quite different from the various muddled categorisations of bourgeois statisticians, economists and the like. For Marx the idea of a separate sector of service jobs which created additional value for capital would be absurd. In the first place he saw that a service is just that — i.e. it is the provision of something useful [a use value] to the purchaser who pays for it out of his own revenue, whether that is derived from wages or profit. The key point here is that the purchaser is paying for the labour power expended by the ‘service provider’ [to use modem parlance] and nothing more. In Theories of Surplus Value Marx gives examples of different kinds of service labour: the “jobbing tailor who comes to the capitalist’s house and patches his trousers for him producing a mere use value for him”; the cook whose labour “I buy. . . purely for the sake of its use value” — these kind of personal services are part of the cost of consumption of commodities. “The labour of the doctor” and the “teacher teaching a skill with which I can earn money” are examples of a different kind of service — services which are part of the costs of production of labour power. In all these cases the labour expended, although very useful, is unproductive labour for capitalism. This is not a question of how hard or otherwise the’ service provider’ works, or whether or not their work results in a material product:

“… the jobbing tailor, [who works for me at my home) is not a productive labourer, although his labour provides me with the product, the trousers, and him with the price of his labour, the money.” [3]

On the other hand, the same tailor, performing the same task of trouser making, but now employed by a capitalist textile merchant and working for a wage is a productive labourer. How can this be? If it is not the kind of work which determines whether labour is productive or unproductive, what is it?

The answer lies in the changed relationship of the worker [in this case the tailor] to capital. In the first case, once I have paid for the use value [the trousers] created by the tailor’s labour then the money is gone and I have no way of capitalising from this. As Marx ironically explains, in the case of the tailor employed by the textile capitalist,

“… the service which [he] renders to this capitalist does not consist at all in the fact that he converts cloth into trousers, but that the necessary labour-time materialised in a pair of trousers is say twelve hours, while the wage that [he] gets is equivalent to six hours. The service which he renders the capitalist is therefore that he works six hours for nothing. That this takes place in the form of making trousers only conceals the real relationship.” [4]

In the first example, the tailor’s work has simply produced a use value (in the shape of the pair of trousers) with which the purchaser can wear or use how they like. In the second example, the trousers the tailor has made for their employer take the form of a commodity — that is, they have both a use value and an exchange value. Expressed as money, the exchange value of the trousers is the price they would cost in the shop or marketplace. So, as soon as he can, the textile capitalist “therefore tries to transform the trousers again into money” in order to capitalise on the difference between the money he has paid out for the wages of the tailor (equivalent to six hours’ work) and the money he receives for the trousers (equivalent to 12 hours’ labour).

Once the tailor is employed in producing a commodity, then his labour becomes productive for capital in that he has created something for the capitalist that embodies more value than he receives back in wages. Unlike the service worker, the person who produces commodities is a productive worker for capitalism because their labour is:

“Labour which produces surplus value, a new value over and above the equivalent which it receives as wages.” [5]

By the same token, the commodity which is the manifestation of productive labour may or may not be a material object and may, or may not, be the product of mental or manual work. Actors employed by a theatre company, for example, will most likely perform a play for which the box office returns are more than the value of the wages they receive. Or again, as Marx puts it:

“A writer is a productive labourer not in so far as he produces ideas, but in so far as he enriches the publisher. … The use value of the commodity in which the labour of a productive worker is embodied may be of the most futile kind. … It is a definition of labour which is derived not from its content or result, but from its particular social form.” [6]

Whilst the so-called Classical school of political economists like Adam Smith recognised that labour had a role to play in the creation of economic wealth, it was Marx who developed this labour theory of value. He demonstrated that the accumulation of capital derives solely from the hidden, unpaid labour of commodity producing workers: from the value over and above the cost of their labour power which is taken away from them as soon as they enter into the wage labour relation. Marx’s clarification of the exploitative essence of capitalism was unacceptable to those who benefited from it. The capitalist response to Marx’s economic analysis was to ditch the Classical school and the labour theory of value altogether. [7] However, it is one thing to deny a theory, the underlying reality of capitalism — which it is our contention only the labour theory of value can explain — cannot be altered without getting rid of capitalism itself.

But let’s not digress. Before we can finally investigate the capitalists’ current claim that investment in services adds higher value to their economy, there are a couple of further reminders of what Marx’s analysis entails.

First of all, we need to be aware that although in the Marxian analysis, service work is unproductive [of surplus value], unproductive labour is not confined to the service sector. With only a few exceptions Marx could categorically place the whole of commercial [or ‘merchant’] capital — capital involved in the process of buying and selling — in the bracket of unproductive capital since “neither the time of purchase nor of sale creates any value.” [8] The wages of workers in this sector belong to the costs of circulation, i.e. they are drain on overall surplus value, even though the work is necessary for the functioning of capital and even though the individual worker “works as well as the next man”,

“… his labour creates neither value nor product. He belongs himself to the faux frais of production. His usefulness does not consist in transforming an unproductive function into a productive one, nor unproductive into productive labour. … His usefulness consists rather in the fact that a smaller part of society s labour power and labour time is tied up in this unproductive function.” [9]

In view of what we are about to discuss, it’s worth mentioning the transport sector. Put simply, Marx distinguished between transport as a service and therefore unproductive (people) and transport in relation to commodities. In so far as the change of location increases the exchange value of the commodity, i.e. when the labour of the transport workers has imparted value, then transportation is productive for capital.

Finally, it’s worth stating what may be blindingly obvious: What is unproductive labour for capitalism in value terms is not necessarily unprofitable in financial terms. Financial profit is not the same thing as the production of surplus value. Yet even though most of the time the capitalists fool themselves into believing that increasing financial profits necessarily means ‘economic growth’ [not least in their GDP statistics], even though they deny that labour is the basis of real economic growth, they are still obliged to recognise — albeit in a distorted way — that the vast increases in nominal wealth are due to the increased productivity of labour.

Part Two: The Value of Capitalist Services


In the first part of this article we noted that four out of five jobs in the UK are now officially classified as ‘services’. The UK is in the forefront of a tendency amongst the richest capitalist countries whereby ‘services’ form an increasingly large part of GDP.

Drawing from this, there is a growing consensus amongst capitalism’s economic pundits, especially of the Anglo-Saxon variety, that the service sector is now more productive than manufacturing industry. Clearly this is a very different argument from in the past when economists used to maintain that a higher rate of productivity in the manufacturing sector enabled advanced economies to sustain the burden of an expanding, less productive service sector. Yet, if the idea that services are the main source of ‘added value’ in an economy is nonsense from a Marxist perspective, for the capitalists who don’t accept that labour is the source of all value and who judge the value of everything in terms of money and price, it matters only that ‘services’ apparently generate economic growth.

Wage Labour is the Real Source of New Value

The term ‘service’ for Marx defines labour which creates a use value for someone else who is prepared to pay for it. This definition is based, not on ‘what’ is created or on the particular kind of work that is carried out, but on the relationship of the labourer to capital. The service worker may be a live-in domestic help or nanny who works for a wage, a window cleaner or a tutor engaged to give music lessons for a set fee, right through to the whole gamut of lawyers, preachers, prostitutes, and so on. In all these and similar instances the labour of the ‘service provider’ produces something of use to the purchaser who in turn pays for it directly out of their income or revenue. Nevertheless, no matter how ‘valued’ the service may be to the purchaser, in terms of society’s overall wealth they generate no new value because the recipient of the service pays for the full amount of labour expended in creating it. In the capitalist society of Marx’s day personal purchase of services was the norm but his basic insight that the labour of the service worker is paid for out of revenue or incomes holds for later advanced capitalist economies with welfare systems and state bureaucracies funded out of taxes. Marx described taxation as enforced saving and to the extent that public services — including the wages of the workforce — are paid for out of taxation (largely deducted from workers’ wages, but also from profits) they fall within his definition of ‘services’ — i.e. as providing something useful, in this case for the holding together of capitalist society as a whole, and paid for out of society’s total revenue.

From a Marxist standpoint service work is unproductive not because the work is unnecessary, brain-work rather than manual, or whatever other subjective criteria, but because no new value is created beyond the labour used up in creating the service. It is otherwise when a wage worker is engaged to produce commodities for a capitalist employer.

In this case the terms for the sale of labour power have changed and the whole relationship between the person doing the work and whoever is employing them are different. Now the employer is buying the labour power of the wage worker for a set amount of time during which their labour will be expended in producing commodities (exchange values) which have no direct use value to the employer since the only reason for producing them is that they can be sold on for a profit. Unlike the personal payment a capitalist might make for a service, the wages a company or business pays to its commodity-producing workforce come from a capital fund which will be replenished by far more than the cost of the wages themselves once the profits are realised for the commodities sold. This is possible only because the workers are obliged to work longer and produce more commodities than if they were simply reproducing commodities equivalent in value to their wages. For example, it may take a worker in a food processing factory half a day to produce commodities equivalent in value to their wages but the working week is five days. The value of the commodities produced by the worker during the remaining four and a half days is claimed as a natural right by capital which fails to recognise that it is this unpaid surplus value which is the source of capital growth.

Here then, for Marx is ‘productive labour’: labour which is employed not simply to produce a use value but which produces commodities (exchange values) and in so doing produces surplus value over and above the value of wages.

Capitalism today is even more in denial about labour being the source of value than it was in Marx’s day. For the capitalists it is capital which produces new value, although they cannot explain how this happens. It is unsurprising therefore that their definition of service work does not coincide with that of Marx and, as we shall see, includes both unproductive and value-producing labour power as well as other categories of unproductive labour, notably retail and bank workers, associated with the circulation of capital and commodities.

If we take this extract from an official table as a more or less up-to-date depiction of the UK workforce we can see that these categories neither coincide with Marx’s definition of services nor the marxist distinction between productive and unproductive workers. For the Office of National Statistics [ONS] five out of the nine categories of jobs are defined as ‘services’. By contrast, using Marxist criteria, if we assume the first four categories are predominantly composed of productive workers [1] then, at a rough guess, we can suppose that several more million or so workers categorised by the ONS under service work should be classed as productive. Take transport, for example. Marx clearly argues that when the exchange value of commodities increases as a result of their being transported from one place to another then the labour of those who do the transporting is productive labour.

“And although in this case the real labour has left no trace behind it in the use-value, it is nevertheless realised in the exchange-value of this material product; and so it is true also of this industry as of other spheres of material production that the labour incorporates itself in the commodity, even though it has left no visible trace in the use-value of the commodity.” [2]

It is otherwise ‘in the case of the transport of people’ which ‘takes the form only of a service rendered to them by the entrepreneur’. [3] However, our point here is that a substantial part of the workforce in a category classified by the bourgeoisie under ‘services’ is engaged in productive labour, as defined by Marx’s labour theory of value.

Similarly with other categories officially classified in the ‘service sector’. We cannot assume that the word ‘service’ means unproductive labour. For instance, much of the labour subsumed under the category of ‘distribution, hotels and restaurants’ is involved in producing commodities (creating new value) or adding to their value rather than in the simple deliverance of a use-value as a personal service. There are 2.5 million hotel and restaurant workers in the UK, most of them are wage workers employed by a capitalist enterprise and are not simply receiving payment for providing a personal service. Here is Marx again:

“The cook in the hotel produces a commodity for the person who as a capitalist has bought her labour— the hotel proprietor; the consumer of the mutton chops has to pay for her labour, and this labour replaces for the hotel proprietor (apart from profit) the fund out of which he continues to pay the cook.”

This is quite different from when

“I buy the labour of a cook for her to cook meat, etc., for me, not to make use of it as labour in general but to enjoy it … then her labour is unproductive … The great difference (the conceptual difference) however remains: the cook does not replace for me (the private person) the fund from which I pay her, because I buy her labour not as a value-creating element but purely for the sake of its use-value.” [4]

The ONS table, moreover, doesn’t demarcate the number of workers in relatively new, growing sectors of the economy such as media and so-called creative industries. On the latter the Financial Times ran an article last year which provides more recent information.

“Britain’s creative sector has almost doubled in size in a decade, spurred on by rapid growth in the radio, television advertising and software industries. The creative industries account for almost 9 per cent of the economy, according to the latest figures, as modern sectors gain share at the expense of older ones such as manufacturing and farming. … In 2002 the creative sector accounted for £80.9bn of gross value added to the economy — a measure of genuine value added to the economy — according to the Office for National Statistics. The 93 per cent rise over the decade compares with an increase of only 70 per cent for the economy as a whole.” [5]

When we consider how much of the ‘creative industry sector’ is run as a capitalist profit-making enterprise it is clear that the work of actors, artists, playwrights, etc., regarded by Marx as ‘insignificant compared with the totality of production’ nowadays does indeed add ‘genuine value’ to the economy by courtesy of a workforce which is just as much engaged in the production of commodities as any factory worker.

“It is the same with enterprises such as theatres, places of entertainment, etc. In such cases the actor’s relation to the public is that of an artist, but in relation to his employer he is a productive labourer.” [6]

Even the BBC’s supposed dependency on licence fees is a thing of the past and the ‘public service broadcaster’ is highly involved in the competitive media business. Here is another indication that there are millions of workers within the officially designated ‘service sector’ whose labour produces commodities (and therefore new value) and who are paid out of capital (or profits).

Clearly, therefore, an examination of the official workforce statistics from a Marxist standpoint reveals that millions of jobs classified by the bourgeoisie as service work do in fact involve productive labour. The size of the value producing labour force — in Marxist terms — is possibly twice as large as the figures suggest. Instead of around 6.3 million value-creating jobs we can estimate there are at least 12 million such jobs. However, this still means around three-fifths of the 30 million or so jobs in the UK’s new economy are unproductive in value terms. Extrapolating for the employed workforce (which is smaller than the number of jobs) we can say that roughly 17 million of the 28 million employed workers do not produce new value. In terms of the population as a whole (almost 58 million) this means that for every value producing worker there are close on five other people. If UK economic wealth was in reality generated entirely by the domestic economy, then this would indeed signify both a high rate of surplus value and the generation of a high level of absolute value from sectors outside of the traditional areas of manufacturing, extractive industries and construction. Yet, even as we acknowledge the existence of commodity-producing, value-generating sectors amongst the officially-designated service workforce, it is not primarily these jobs which the likes of the Institute for Fiscal Studies claim “create higher added value for the country”. [7]

On the contrary, with the possible exception of the ‘support services’ sector which includes value producing workers and the ‘media’ — which sector the official statistics do not specifically categorise — it is precisely the unproductive sectors of their ill-defined ‘service sector’ which the bourgeoisie claims are amongst “Britain’s biggest wealth creators”. (Again, we are referring to surplus value, not nominal currency values.)

The Mystery of Value Added

Earlier this year the Financial Times set itself the task of “unravelling the riddle of wealth creation” and only revealed how the inability to see beyond nominal money values ensures that the real source of wealth creation will remain forever a mystery to the capitalist class. However, in its attempt to solve the mystery, the FT published the DTI’s (Department of Trade and Industry) lists of the companies and sectors it designates as the UK’s top ‘wealth creators’: that is, those which make the biggest financial profits.

What the FT shows is that five or six out of ten [8] of the DTI’s most profitable sectors do indeed fall into the UK’s officially-designated service sector. A further glance tells us that banks predominate. (They comprise 5 out of the 12 top UK companies and head the ‘wealth creation’ sector list). While the profitable ‘support services’ (anything from Rentokil to Jarvis) and ‘telecoms’ sectors will include both productive and unproductive labour, the retail sector (8th on the list) is on the whole unproductive in value terms.

There are about 2.8 million retail workers in the UK. According to Marx, their jobs are part of the cost of circulating capital in its commodity form. The retail sector comes under what Marx described as ‘merchant’s capital’ — capital whose essential role is to buy cheap and sell dear but which itself does not create value.

“Merchant’s capital, therefore, participates in levelling surplus value to average profit, although it does not take part in its production. Thus the general rate of profit contains a deduction from surplus value due to merchant’s capital, hence a deduction from the profit of industrial capital.”[9]

As for the retail workers,

“In one respect, such a commercial employee is a wage-worker like any other. In the first place, his labour-power is bought with the variable capital of the merchant, not with money expended as revenue, and consequently it is not bought for private service, but for the purpose of expanding the value of the capital advanced for it. In the second place, the value of his labour-power, and thus his wages, are determined as those of other wage-workers, i.e., by the cost of production and reproduction of his specific labour-power, not by the product of his labour. However, … Since the merchant, as mere agent of circulation, produces neither value nor surplus-value … it follows that the mercantile workers employed by him in these same functions cannot directly create surplus-value for him.” [10]

And, just as the retail sector is in fact a drain on society’s real wealth so is the UK’s much-vaunted ‘financial services’ sector which now comprises almost 6 million workers. Even though the banks, head the DTI’s profitability list they are “nothing but a deduction from the surplus value since they operate with already realised values (even when realised in the form of creditors’ claims.)” [11]

In the next part of this article we will try to solve the real conundrum of how the financial sector — which represents a massive drain on surplus value in terms of the labour theory of value — should head the capitalists’ wealth creation list. Meanwhile, a last word on services.

Public Services Turned Into Commodities for Capital

As we have seen, there is no consistent capitalist definition of service work. For Marx service work by definition is unproductive because a service is not a commodity and the labour involved in producing a service creates use value but not exchange value. The bourgeoisie, on the other hand, include all sorts of labour — including commodity producing labour, but also unproductive labour which strictly belongs to the cost of circulating capital — in the category of services. If we look once again at the ONS workforce table, it is apparent that the largest single category — ‘health, education and public administration’, with 7.4m workers, comes closest to Marx’s definition of service work. Although in the main these workers do not receive a personal fee for the use value they provide, the wages of most of them are paid out of taxation, that is out of society’s revenue and though they provide a more or less useful service, the cost of their labour power is a drain on the overall pool of surplus value. Unlike with the much-vaunted financial sector, Gordon Brown and Co. are quick to perceive education, hospitals and welfare spending in general as a drain. Hence the cuts and also the attempts (without consciously realising it) to turn services into commodities by turning over care homes, aspects of medical care and certain branches of schooling, into the hands of private capital to run as a business. In this case services, previously paid for out of taxation, are turned into commodities where the ‘service provider’ has been turned into a value producing wage worker.

In practice it is difficult for capital to fully ‘commoditise’ genuine services but the growing involvement of private capital in the provision of public services — from central and local government outsourcing of supplies (worth £30bn to private capital last year) to the so-called private finance initiative (PFI) which currently includes more than 660 projects from Capita’s running of London’s traffic congestion charging scheme to the ill-fated involvement of Jarvis in railway maintenance and school building — gives companies access to revenue from taxation which they can then employ as capital to boost their profit rates or at any rate the value of the company’s shares. These efforts to turn revenue into capital and services into commodities are dwarfed by the financial returns accruing to the UK’s financial sector but they take place in the context of the international ‘freeing of the services market’ being negotiated in the Doha round of the WTO and are symptomatic of the desperation to find new sources of surplus value that typifies capital today.

Part Three: The Booming Financial Sector

The strongest performing sector in the UK economy is business and financial services. Business and financial services continue to form the largest single sector of the UK economy, and in 2003 accounted for 31.7 per cent of the total, which was more than double the size of the manufacturing sector. Insurance companies, banks and other financial institutions achieved net exports of £19bn in 2004, almost three times higher than their contribution to the balance of payments a decade ago. [1]


The previous part of this article focused on the predominant role of ‘services’ in the UK economy. We examined the bourgeoisie’s claim that services added value to the economy by looking at the various official categories of service work in terms of Marx’s definition of what constitutes productive and unproductive labour. Whilst we did find that a substantial part of the workforce who are officially classified as service workers do indeed produce surplus value it nevertheless appears that up to three-fifths of employed workers in the UK are not productive in value terms. By far the two largest unproductive sectors of the economy are the public sector – where a workforce of roughly 7.4 million (as classified by the Office of National Statistics under ‘education, health and public administration’) is paid out of taxation and whose work therefore does not involve the creation of new value – and the 6 million or so who are employed in the amorphous category of ‘finance and business services’ whose work equally produces no new value.

For the capitalists who are not interested in the labor theory of value and do not recognise human labour power as the source of wealth, this flies in the face of their perception of reality, a perception which essentially equates economic growth with financial profit. So, while on the one hand Gordon Brown has no trouble recognising the public sector as a drain on wealth (and is constantly imposing spending cuts and trying to curb the growth of the workforce), when it comes to the financial sector he is amongst the first to boast of its most celebrated component, the City of London, which he claimed in 2002 “generates fifty billions of wealth each year, provides work for over one million people and accounts for over five percent of UK GDP”. [2] Quite simply, the City and the whole panoply of banking, money-dealing, speculating, hedging, insuring, lending and so so on that come under the heading of ‘financial services’ generate massive sums of revenue or financial profits which capital describes as ‘added value’ and which in fact do help the UK maintain its position as the world’s fourth largest economy. So how is it that the financial sector which, according to the labour theory of value, produces no new value, should head the capitalists’ wealth creation list?

Marx on Money-Dealing Capital

Marx points out that at its most elementary level the banker, or money-dealing capitalist performs a useful function for capital in that it provides the technical means for the circulation of capital and thereby the realisation of surplus value and the continued accumulation of capital. The banks act as middlemen in the dealings between the industrial (value-producing) capitalists and the merchants (wholesalers, retailers, etc.) which are a necessary part of the circulation process. Basically the banks pay out and receive money on behalf of the industrial and commercial capitalists (using money capital deposited by them) and thereby shorten the process of circulation. Though this is a useful and necessary function the labour involved is “a cost of circulation, i.e. not labour creating value.” [3] The money-dealers pay themselves a profit out of the money capital of the industrialists and commercial capitalists in return for carrying out an increasing number of specialised functions extending way beyond the collecting, paying and book-keeping derived from the simple function of “disbursing and receiving money”. “It is evident”, therefore,

“that the mass of money-capital with which the money-dealers operate is the money-capital of merchants and industrial capitalists in the process of circulation, and that the money-dealers’ operations are actually operations of merchants and industrial capitalists, in which they act as middlemen. It is equally evident that the money-dealers’ profit is nothing but a deduction from the surplus-value, since they operate with already realised values (even when realised in the form of creditors’ claims).” [4]

As with merchant’s capital, which does not produce new value and whose profits and wages come from the surplus value created by the productive capitals, so too the money dealers’ role in the process of realising surplus value subtracts from the overall pool of surplus value. And, just as merchant’s capital “participates in levelling surplus value to average profit, although it does not take part in its production. Thus, the general rate of profit contains a deduction from surplus value due to merchant’s capital, hence a deduction from the profit of industrial capital” [5], so we might suppose that the vast profits generated by today’s burgeoning financial sector equally represent a lowering of the general rate of profit.

To the extent that today’s financial transactions remain a necessary part in the circulation of commodities and for the realisation of their value then the costs incurred still represent a deduction from the surplus value and a lowering of the general rate of profit. (Which, by the way, in today’s world has to be seen as a global averaging of profit rates.) However, the most significant aspect of the financial sector nowadays is precisely its increasing divorce from the function of realisation of commodity values. As our comrades in the International Bureau have been arguing for some time,

“The classical form of valorisation of capital, M-C-M1 is tending to be superseded by M-M1, or rather, … by the production of finance capital by means of finance capital without the mediation of the production process or the trading of goods.” [6]

Marx recognised that the development and extension of the credit system encouraged the growth of fictitious capital, i.e. nominal paper capital unconnected to the realisation of commodity values and separate from the accumulation process.

“With the development of interest-bearing capital and the credit system, all capital seems to double itself, and sometimes treble itself, by the various modes in which the same capital, or perhaps even the same claim on debt, appears in different forms in different hands. The greater portion of this ‘money-capital’ is purely fictitious. All the deposits, with the exception of the reserve fund, are merely claims on the banker, which, however, never exist as deposits.”[7]

Moreover, once money takes the shape of a loan it no longer serves as a medium of circulation but represents a certain amount of capital value held by the lender.

“And in this form he transfers it when lending it to another. If A had lent the money to B, and B to C, without the mediation of purchases, the same money would not represent three capitals, but only one — a single capital-value.” [8]

Again, Marx saw that the separation between loan capital and real capital means that “the mass of loanable money-capital thus grows quite independently of the actual accumulation” but he tempered this with the aside that “we are not speaking here at all about loans for a number of years but only of short-term ones on bills of exchange and deposits.” Over a century and a half later and towards the end of capitalism’s third global cycle of accumulation capital has dreamed up more ways of extending credit and creating ‘financial instruments’ than Marx could have imagined. The voluminous amount of fictitious capital divorced from real capital values continues to grow and since this has so far not led to a mighty collapse the capitalists themselves like to believe that the more an economy rests on profits from purely financial transactions the healthier it is.

The UK: A Lead Financial Player

Thanks to the historical legacy of the Square Mile’s financial institutions, UK capital had a head start over its European rivals when international financial markets opened up to global competition in the 1980’s. It is an advantage UK financial capital has used to shore a substantial part of the revenue generated from global financial transactions. Now, for example, the City claims

  • $753bn foreign exchange turnover each day in London (31% global share)
  • 58% of the global foreign equity market, with 450 foreign companies listed on the London Stock Exchange
  • 70% of all Eurobonds are traded in, and issued through London
  • $2000bn per annum traded on metals in London
  • The world’s leading market for international insurance. UK worldwide premium income reached £153bn in 2003
  • 790m contracts a year traded on the London international futures exchange: Euronext.liffe
  • £2713bn total assets under management in the UK in 2003
  • £1046m in overseas earnings generated by the maritime industry in London
  • 20% of international bank lending arranged in the UK (the largest single market)
  • £1406bn pension fund assets under management (third largest in the world)
  • $643bn daily turnover in ‘over the counter’ derivatives (42/6% of global share)
  • 287 foreign banks in London [9]

Whilst some of this trading bears some resemblance to the commodity—money—commodity turnover where money functions as a medium of circulation, the vast bulk of the City’s transactions are firmly in the realm of fictitious capital — transfers of paper, often some form of debt obligation, each one of which accrues a financial rake-off for the financial ‘service provider’. Little of the trade involves the domestic economy — where it does it is likely to involve the sell-off or take-over of a company (merger or acquisition) by capital from abroad — and the largest financial firms tend to be US or European-based.

As far as the domestic economy is concerned, economic growth over recent years has been fuelled by the massive build-up of private debt, first on the basis of credit cards and then on the back of mortgage-backed lending which fuelled house price inflation so that now the UK’s private mortgage debt is equivalent to 72% of GDP. [10]

Whether the borrower is a private individual or corporate enterprise, the bank, building society, security house, or whoever is doing the lending, will almost immediately pass the debt on to somewhere else.

“One example of recent secondary trading was Jarvis, the heavily indebted support services company, in April where almost all the UK banks that owned about £250m of debt sold their holdings in the secondary market. US Strategic Value Partners picked up 20 per cent of Jarvis debt—a large part of which for 70p in the pound.” [11]

Financial instruments have come a long way since Marx noted that the rural depositor with his country banker “has not the slightest suspicion that this banker places his deposit at the disposal of some London bill-broker, over whose operations neither of them have the slightest control.” [12]

For all the larger numbers, the greater sophistication and the internationalisation of the players this game of financial pass the parcel remains essentially the same. Even capitalism’s own financial pundits do not believe that extending it ad infinitum will be without serious economic consequences. And even if this game of extending fictitious capital is being played more or less independently of the accumulation process there is ultimately a link since the financial profit of the money capitalists is, at the end of the day, based on the pool of surplus value expropriated from workers in the productive sphere. Meanwhile, the fact that more and more capital sees a higher rate of return in the financial sphere indicates the dearth of ‘opportunities’ for capital in value-producing ‘investment’. In other words, the classical symptoms of the end of an accumulation cycle.

This, of course, takes us beyond the boundaries of the UK economy and to the question of the capitalist crisis which we deal with elsewhere. [13]

Part Four: The Illusion of a Productive Economy

So far in this series we have been subjecting capitalist claims about the wealth generated by today’s service-dominated economy to a Marxist value analysis. It is now time to draw these threads together and see what they tell us about the current state of well-being of UK capital. First, then, a reminder of some of the significant points established so far.

The relative decline of manufacturing industry and employment is a well-known fact. According to official figures financial and business services now account for about one in five jobs in the UK, compared with about one in ten in 1981. A breakdown of the UK’s Gross Value Added (GVA) figures for 2002 shows business and financial services accounting for 30% compared to manufacturing’s 16%. [1] At first reading these sort of statistics are a challenge to the theory that labour is the source of all value, especially since service work as defined by Marx cannot produce new value. We have therefore not only had to clarify what Marx meant by service work(labour expended on a specific task that has use value for the person who is paying for it out of their income) but also what he meant by productive and unproductive labour in order to distinguish the meaning of all these terms from the way in which they are used by capitalist economists and statisticians.

The True Definition of Productive Labour

Essentially, productive labour for Marx is commodity-producing labour — i.e. labour which produces not just use value but also exchange value for capital. Whereas the service worker is paid in full for the labour used up in producing something of immediate use, the productive worker is employed by the capitalist to produce commodities, not for immediate use, but to be sold at a profit. That profit is derived from the unpaid labour time the worker is obliged to work over and above the time it takes to produce the amount of commodities to cover the cost of his/her wages. Whilst for capital ‘value added’ is essentially a monetary calculation with productive or unproductive sectors of the economy being defined in terms of profit or loss, a Marxist approach reveals that “Labour which produces surplus value, … over and above the equivalent which it receives as wages” is the one and only source of new value.

By the same token, for Marx labour is unproductive when it is not part of commodity production whilst for capital ‘unproductive’ simply means ‘unprofitable’. Once upon a time the capitalist definition of ‘services’ was practically the same as ‘unprofitable’ (though also vaguely implying something useful) but the spectacular rise of ‘business and financial services’ in recent years means that the term really has no consistent meaning in capitalist economics. (What, for example, is the defining characteristic that links ‘financial’ and ‘social’ services?) We came up against The Office of National Statistics’ own confusion about what it means by ‘services’ when we examined its workforce profile for April 2005 and found that it classified 80% of all jobs under services. [2] For the ONS everything that doesn’t come under manufacturing, construction, energy or agriculture must be a service! This official categorisation not only blurs the role of new productive sectors, such as the media and software industries, it does not allow for any more than a rough estimate as to how many workers produce new value for capital even though their jobs are classified under ‘services’. In part two of this series our estimate was that about one quarter of the jobs — around 6 million — officially classified as ‘services’ involve the production of new value. We can assume, for example, that a substantial part of the labour force in the ‘distribution, hotel and restaurant sector’ as well as in ‘transport and communications’ produces surplus value. Equally, we can say that the workforce in capitalism’s highly acclaimed ‘business and financial services’ sector produces no new value, despite the amount of financial profit generated. In the previous issue we saw how the boom in the financial sector is in fact due to a massive generation of fictitious capital and it is here that the distinction between surplus value and financial profit is most glaring. Overall we were able to extrapolate that for every value producing worker in the UK there are almost five other people, either working or otherwise, who do not produce value. Ironically this close on 1:5 ratio is roughly the same ratio as it was in Britain in 1861 when, according to the 1861 Census there was a population of 28.7 million and, using the same rough and ready guesstimate, a productive workforce of around 6 million. [3]

Commenting on a report to the House of Commons for that same year which revealed that “the total number of persons (managers included) employed in the factories properly so called of the United Kingdom was only 775,534, while the number of female servants in England alone amounted to 1 million”, Marx wryly remarks:

“What a convenient arrangement it is that makes a factory girl to sweat twelve hours in a factory, so that the factory proprietor, with a part of her unpaid labour, can take into his personal service her sister as maid, her brother as groom and her cousin as soldier or policeman!” [4]

In this one sentence Marx graphically illustrates how the revenue to pay workers who are not involved in commodity production is drawn from the pool of surplus value annexed by capital from the unpaid labour of productive (i.e. commodity-producing) workers. This is only possible once the surplus value is realised for capital in the form of financial profit. Clearly, however much of that financial profit is used as revenue to finance non-productive expenditure (as opposed to being redeployed as capital for a further round of value production) then this represents surplus value which has been withdrawn from the accumulation process. The wage bill of a large section of the non-productive workforce thus represents a drain on the pool of surplus value that has already been realised from previous accumulation. As such, however, this has no bearing on the rate of profit. It is otherwise with the commercial sector.

Although workers occupied in the various aspects of buying and selling (what Marx called ‘merchant’s capital’) do not produce surplus value they are engaged in realising that value — of turning it into profit — for capital. Their wages, as well as the capital outlay and profits drawn by the wholesaler, retailer, accountant or whoever, represent surplus value hived off from the productive sphere and in this way enter into the formation of the average rate of profit.

“Merchant’s capital, therefore, participates in levelling surplus value to average profit, although it does not take part in its production. Thus, the general rate of profit contains a deduction from surplus value due to merchant’s capital, hence a deduction from the profit of industrial capital.” [5]

In fact the distinction between merchant’s capital and productive capital is not always so clear. For instance, the domination of the grocery trade by supermarket giants who control the production of many of the commodities they sell not only means that a larger portion of the overall surplus value involved in producing the goods accrues to Tesco or Asda, but the marginal reduction in overall capital outlay lessens the fall in the general rate of profit. The everyday reality of capitalism is always more complicated than the theory. Without theory, however, the underlying forces which shape that reality would remain a mystery.

Steady Progress or Spectacular Decline?

Turning once again to Marx’s observation on the high number of (unproductive) household servants in relation to factory (productive) workers in 1861. Marx not only makes it clear what he thinks about the increasing retinues of servants the capitalists are able to employ on the basis of the factory workers’ unpaid labour, he also explicitly states that this situation accompanies the growing productivity of capital (i.e. workers’ labour). In other words, the increased rate of surplus value (or unpaid labour) that accompanies the development of the productive forces brought by the continuous accumulation of capital allows not only for a higher level of population but for an increasing level of social wealth, albeit inordinately accruing to the capitalist class. Historically it is capitalism’s unprecedented development of the productive forces that has laid the material possibility for a world where — once the capitalist hold over the productive forces is broken — work alone will no longer dominate anyone’s life.

The champions of the new ‘service’ economy like to present the decline of manufacturing industry as the natural outcome of capitalism’s advance. (Of course, without the prospect of the capitalist era ever being drawn to a close.) —The more ‘mature’ an economy becomes the more it will achieve ‘economic growth’ by progressively moving out of manufacturing and primary industries and in so doing the more prosperous will be its citizenry. In this scenario the UK’s position as the fourth richest country in the world (by GDP) is credited to the rise of ‘services’, especially financial services. The reality is otherwise. In the first place, the history of the capitalist economy is not one of steady, progressive growth. The benign image of gradual improvement presented, for example, by the Office of National Statistics in a special end of century report entitled, A Century of Labour Market Change, is totally misleading. Under ‘key points’, the document says:

“One major change was the shift in industrial composition. In the UK, manufacturing’s share fell from 28 to 14 per cent of employment, and agriculture’s share from 11 to 2 per cent.” [6]

This simply ignores the cyclical nature of capitalist development: the impact of two world wars and the economic crisis between them with its mass unemployment in manufacturing and heavy industry complemented by a relative rise in service (or tertiary) employment. It also omits to mention that for decades after the Second World War manufacturing’s share of employment was far higher than its 28% share in 1900. In 1951 39% of employed workers were in manufacturing. A decade later this portion had reduced by 1%! In the next decade, between 1961-71 the decline accelerated … by 2%! By 1975, however, the percentage of manufacturing workers in the workforce, at 29%, had more or less returned to what it had been in 1900! So much for the steady advance towards the squeaky clean ‘new economy’.

In reality, as workers who lived through the Seventies and Eighties are aware, and as we have written about over the years, the wholesale economic restructuring which has reduced manufacturing employment has been no steady transition. On the contrary, today’s ‘new economy’ is very much the product of the subduing of the working class after a series of head-on attacks and sector-by-sector defeats over the course of almost two decades a generation ago. The occasion for those attacks was the reappearance of capitalism’s cyclical crisis of accumulation, a crisis of worldwide dimensions in which UK capitalism led the way in its attacks on the working class and the discarding of the post-war quid pro quo with the trades unions. This article is not the place to go over the battles which ended with the loss of job security for hundreds of thousands of workers and unemployment for millions; the ruthless introduction of new technology which brought wage cuts and undermined the power of the old skilled workforce; the equally calculating attacks on steelworkers, shipyard workers and coal miners which hastened the wholesale dismantling of the state industrial sector as UK capital embraced the possibilities of globalisation. Suffice it to say that the accelerated decline in manufacturing employment — down 7% as a portion of a declining working population between 1971 and 1981 and then by a further 9% in the next decade (to 20% of the employed workforce) until today manufacturing employment, at about 3.5 million is around 12% of the population in work — has not brought a return to pre-crisis growth rates, however they are measured.

If the UK is managing to maintain its position amongst the leading imperialist powers this is not because the move away from manufacturing has led to a remarkable advance in productivity. Even though we can say that over 6 million jobs in the officially-designated service sector involve the production of surplus value this still means that an astonishing 60% of all (officially recognised) jobs are unproductive. Furthermore, though we can only guess at the rate of surplus value, it is unbelievable that the value-output per worker in spheres like the ‘hospitality industry’ comes anywhere near matching the average rate of surplus value of the high-tech manufacturing worker, much less that this is what lies behind the economic growth that is claimed for the new economy. Even by capitalism’s own criteria the UK is slipping behind in the productivity stakes. [7] Rather it is the UK’s pre-existing position as an imperialist power, including its over-valued currency and its historical role in the world of international finance and trade, that allow it to live under the illusion (along with the rest of the advanced capitalist world) that the generation of financial profit is in itself a sign of economic growth.

As it is, the main engines of economic growth in UK in recent years have been increased spending on consumer goods on the back of a phenomenal increase in personal debt fuelled by credit card spending and a speculative boom in house prices. At 140 per cent, the ratio of UK household debt to disposable income is now even higher than in the US [8], whilst the Office of National Statistics’ evaluation that the UK was worth £5.3 trillion at the end of 2003 reveals that housing represents over £3 trillion of these assets! [9]

The Significance of this Enquiry

Of course in the real world the analytical distinctions we have been making, between surplus value and financial profit, between productive and unproductive labour, do not alter the situation of workers. Whether you are male or female, working in a hospital, call centre, supermarket, oil rig or factory, the common thread which unites you in relation to capital is the necessity to work for a wage, not whether or not your labour produces surplus value for the bosses.

The point of examining the relationship of productive to unproductive labour is by no means to suggest that one set of workers is more class conscious than another. (And maybe it’s worth emphasising again that when it comes to surplus value ‘productive’ is not synonymous with ‘manual’ nor ‘unproductive’ with ‘sitting in front of a desk’. These sort of myths were propagated by Stalinism and are encouraged by capitalist ideologues to further the belief that socialism is a dead issue.)

The purpose of this enquiry was to challenge the idea that capitalism as it exists today is healthier than ever and this means challenging the basis of its increased growth claims. We have had to clarify how capital’s extortion of unpaid labour from the workforce is the real source of wealth and in so doing have found that, far from overcoming its accumulation crisis, not only has the ratio of the value producing workforce to the unproductive workforce increased dramatically but that the proportion of ‘national wealth’ accounted for by financial assets which do not represent any new value is unprecedented. The situation of UK capitalism is not unique. It is indicative of the wider malaise of a global system which has an unprecedented supply of financial funds for speculation but fewer and fewer ‘opportunities to invest’. As the Financial Times worries about the news that “business investment sank to a new low as a share of national income last year” financial workers in the City gloat at the prospect of rising bonuses with the lucrative surge in mergers and acquisitions. [10] The new economy is certainly wealth-generating for some. In the light of capitalism’s history, however, it has all the makings of a prelude to a spectacular crash.

We have not done with the new economy yet. In the next issue will look at what is going on from the standpoint of the working class.

Part Five: The Working Class

“A knowledge of proletarian conditions is absolutely necessary to be able to provide solid ground for socialist theories, on the one hand, and for judgements about their right to exist, on the other; and to put an end to all sentimental dreams and fancies pro and con.” 

Engels, Preface to the German edition of The Condition of the Working Class in England, 1845

With this final part of the investigation into contemporary capitalism’s self-styled ‘service’, supposedly ‘knowledge-driven’ economy it is time to turn to the current situation of the working class. By necessity this can be no more than a broad overview of a picture which will become clearer as we supplement what we have already written (for example on themes such as pensions) with more detailed exploration into the changing circumstances of working class life and work.

For revolutionaries it is not enough to understand that, despite capital’s carefully orchestrated avoidance of the term, the working class still exists, nor even that the class struggle is intrinsic to capitalism’s existence. The basic tenets of the communist programme have not changed over the past thirty years nor has the central aim of the revolutionary organisation to establish its political presence inside the class. However, after more than three decades of capitalist crisis and turbulent change it would be naive to suppose that the way we approach this task remains unchanged whatever the situation of the working class. Our interest in the current condition of the working class is more than sociological. Without an accurate picture of the working class today any attempt to remind workers of the significance of the communist programme is liable to fall on deaf ears. Despite the pitfalls involved, we have no alternative but to rely on official statistics and capitalist financial and business surveys — which are often more significant for what they reveal in passing than for their original focus and in any case which we interpret from a totally different class standpoint. Here, then, is a reminder of some of the significant changes in the situation of the working class touched on during this survey of the ‘new economy’.

Changes in How Workers Earn a Living or Restructuring the Working Class

As we have seen, the financial and retail sectors now dominate the UK economy. So-called business and financial services now account for about one in five jobs in the UK, compared, for example, with about one in ten in 1981. The statistics of course do not reveal the devastating series of attacks by capital on the whole working class which were necessary before this situation could come about. The official figures tend to draw attention merely to the relative decline of manufacturing employment but the triumph of the new economy involved much more than workers simply being re-employed or even retrained to do one job rather than another.

Many workers who found themselves unemployed were encouraged to set up their own business or else managed to find work, often doing the same job as before, contracted as ‘self-employed’. In other words, they were now responsible for paying their own National Insurance stamp and finding their own means to supplement the declining state pension. Between 1980 and 2001 (the last Census) the number of self-employed rose from 2.3 million to 3.4 million, or 13 per cent of the workforce! Interestingly enough, a study for the DTI (Department of Trade and Industry) found that,

“The increase in the total number of enterprises since 1980 has been similar to the increase in the total number of self-employed, ‘this shows most of the growth has been in one and two person businesses.’”

This in itself is telling evidence of the domination of existing monopolies in the new economy. For workers who embark on the course of setting up their own firm, it is a precarious business since,

“… roughly 10 per cent of all new businesses registered for VAT fail within a year, and about 35 per cent fail within three years.” [1]

This confirms the impression that for many workers self-employment does not so much mean their permanently joining the ranks of the petty bourgeoisie as their sliding between self-exploitation and becoming even more precarious wage workers. (Especially since an unspecified number of self-employed never even dream of setting up their own business.) Nevertheless a significant part of the proletariat has been ‘privatised’ and removed from the collective existence of the working class.

Where workers did not lose their livelihoods through outright closure of firms or plants they were obliged to submit to a significant deterioration in their conditions of employment as their bosses reneged on long-standing terms of agreement on everything from pensions to overtime pay and the structure of the basic working week. Moreover the privatisation of public utilities (gas, electricity, telephones, water) and the state’s withdrawal from hitherto protected heavy industries (steel, shipbuilding, coal) swelled the ranks of the unemployed far beyond the factory production line. By the mid-Eighties even the official unemployment figures registered more than three million. Many of these workers were men whose wages had been based on the standard post-war wage negotiation concept of the ‘family wage’, who were used to seeing themselves as the household breadwinners, and who would never have a job again. Employment in the coal industry, for example, has fallen from 220,000 at the time of the miners’ strike to 7,000 today. According to a recent report on the progress of economic regeneration in the old coalfield areas “sixty per cent of the coal job losses since the early 1980s have now been replaced by new jobs for men in the same area.” [2] Which means that 40 per cent — or 90,000 such jobs — have not been replaced. Nor do these figures tell us what kind of new jobs have been created by the various regeneration schemes with their range of tax breaks and other inducements for companies to invest. (Although the springing up of retail parks on bulldozed industrial sites gives us some indication.) What we do know with certainty is that the whole idea of the family wage is out of the window along with the heavy industrial jobs which were at its core.

This situation is reflected in the higher employment rates for women in the ‘new economy’. With 53% of all women, or around 75% of females of working age now wage workers, the gender composition of the workforce is just about fifty-fifty. Even now, more than thirty years after the Equal Pay Act, the prime advantage for capital in the employment of women is that their labour power is cheaper. The official line on the situation of women workers is that the gender pay gap is improving. According to the Office of National Statistics, in 2002 the average hourly earning of a woman in full-time employment in the UK was 82% of that of the male average. (Compared to 74% in1986.) [3] Again, however, this ‘fact’ says nothing about what has happened to the average male wage (in terms of actual purchasing power, for example) while it glosses over the fact that poorly paid women workers predominate in the 26% of the workforce who work part-time. Nevertheless, for many sectors of the new economy — such as the 375,000 who work in call centres — the injunction of ‘equal pay for equal work’ suits capital very well since men and women are simply employed at the same levels of low pay. Or rather, the subtle differences in rates of pay are increasingly based on assessments of individual ‘performance’ rather than traditional categories of length of service or the entitlement of a higher wage rate for the male worker. Nowadays the typical family no longer survives principally on the wages of a single breadwinner but is dependent on the combined wages of both man and woman. Combine this with the acknowledgment that “British workers work longer hours and have shorter holidays than any other country in Western Europe” [4], what does this tell us about the emancipation of women? Instead of all workers, both male and female, enjoying more relaxed lives as the number of hours they worked for capital were reduced, the tendency towards a shorter working week has been dramatically reversed over the past two or three decades.

In short, without being able to pursue the details here, there is plenty of evidence to show that the economic ‘restructuring’ which heralded in the new economy and which has been capital’s response to its own profitability crisis, has resulted in wage workers selling their labour power on worse terms than in the period of post-war prosperity. This is not an argument for workers to build new trade unions. The increasing prosperity of the working class in the post-war period was not the result of union negotiating power, rather the latter stemmed from the bosses need to have controlled limits to workers’ demands. However, we must not lose sight of the fact that for this new generation of workers that period is no more than one of historical hearsay, a period which the media are happy to hark back to as a time of rampant trades union power, of disruption to production and anarchy on the streets. In this context we have to be careful to separate our own critique of the unions and their role in leading workers to defeat from the reactionary capitalist press which presents the unions and the working class as one and condemns any sign of resistance by workers as threatening a return to the ‘union power’ of the Seventies and Eighties. As it is, the decline of the unions since the late 1970s when 58 per cent of workers were union members to today when membership stands at around 7.4 million, or about 26.6 per cent of employed workers, is by no means complete. [5] Unions are still playing their role of sacrificing workers’ interests as they negotiate terms acceptable to the bosses, notably in the public but also in the private sector. If their role is not more prominent it is because, for the moment at any rate, capital has more effective weapons preventing workers from embarking on collective struggle.

‘Life is not determined by consciousness but consciousness by life.’ [6]

It is tempting to explain the current passivity of the working class entirely in terms of the weight of capitalist propaganda with its perpetual claim that socialism (meaning old Labour and state-run industries) is dead and communism (meaning a Stalinist police state) is not a viable option and in any case this is thankfully also dead, along with the cloth-capped working class. However, there are other, more material chains reinforcing this current generation of wage workers’ reluctance to struggle.

First there is the weight of debt hanging round the necks of the larger part of the working class. With borrowing against mortgages at a record high and the level of personal debt exceeding annual income even the prospect of a single day of strike action is a formidable step for the home-centred, consumption-oriented worker.

Next, there is the not-so-hidden reserve army of unemployed. There have been so many changes to the official claimant-count based definition of ‘unemployed’ that even the state itself does not believe its own figures. Nowadays even the Office of National Statistics releases a double version of the unemployment rate: the first based on the number of ‘claimants’, i.e. those who have jumped through all the bureaucratic hoops and who have managed to qualify for benefit. This is always the lowest figure. The second “internationally preferred unemployment measure” [7] supposedly shows the total number of jobless and this is always the higher of the two. At the beginning of the year the Financial Times reported the fastest quarterly (!) rate of increase in UK unemployment for thirteen years, with the ‘preferred’ measure showing 1.53 million out of work by the end of November 2005. (Up by 111,000 in three months.) As for the claimant count rate, this had gone up by more than 84,000 over the year and stood at 909,100 by December. The gap between the one and a half million officially recognised as being out of work and the nine hundred and nine thousand ‘claiming’ (not necessarily receiving) benefit gives some idea of just how much of a threat to existence the prospect of becoming unemployed can be.

Even so, these figures themselves disguise the real level of unemployment. When ‘economic inactivity’ amongst those of working age is measured then the figure is far higher, and growing: from 7.8 million in April 2004 to 7.9 million in December 2005. In other words, more than twenty per cent of the labour force is ‘economically inactive’, including students and people on training schemes and the much-publicised 2.7 million or so who are on incapacity benefit. Today the government is preparing to attack people on incapacity benefit but it is not sure how to go about it. During the initial period of the dismantling of heavy industry it was used as a means to disguise the extent to which workers had been thrown on the scrap heap and it still serves this function today. For example, former coalfield areas still rank amongst the highest for take up of incapacity benefit, especially amongst men and particularly amongst men over fifty years old.

In fact 30 per cent of all workers over fifty are outside paid employment and classed as ‘economically inactive’, as are a growing number of young people for whom school days never seem to end. 75% of 16 year olds, 66% of 17 year olds and 40% of 19 year olds are in full time education. Another 20% of 17 year olds are on some sort of government training scheme which leaves 10% in full time work and 4% in part time and 3% ‘doing something else’ so that the official rate of unemployment for 17 year olds is 6 per cent! Similarly with 19 year olds: 40% are in full time education and 35% are in full time work, yet the unemployment rate for this bracket is 6%. However, exclusion from the wage labour force extends to all ages and both genders but whereas more women have entered employment over the last two decades a growing proportion of men have joined the ranks of the ‘economically inactive’. The disappearance of whole sectors of traditional male jobs is reflected in the fact that by 2001 8% of working age men under fifty were classified as ‘inactive’. This compares with less than 1% in the mid-1970s. [8]

Perhaps the clearest single indicator of the extent of unemployment in the UK is the percentage of workless households. The overall average is no less than 16 per cent. Of course this figure hides regional variations — from 23% in Northern Ireland to 11% in the South East and hides the fact that the highest unemployment rate in Britain is in the London borough of Newham.

The point here, however, is that the threat of unemployment is a real one. Combine this with the fact that more workers are joining the black economy which “accounts for anything between £53 billion and £137 billion a year and could involve from 1.4 million to 3.6 million workers” [9] with the state’s ‘welcoming’ of hundreds of thousands of migrant workers from Eastern Europe, the real purpose of which was revealed last year in a speech by the Governor of the Bank of England who noted that “the inflow of migrant labour, especially in the past year or so from Eastern Europe, has probably led to a diminution of inflationary pressure on the labour market…” In other words, wages are being held down.

In this context it is unsurprising that the working class has not returned to the money militancy of a previous generation. What is surprising is that capital has not launched a more comprehensive attack on wages and conditions. That is, until we remember the contradiction capital faces in this globalised world where the ‘consuming power’ of the proletariat in the rich imperialist heartlands is supposedly the engine for global growth. So the attacks are less direct, with the state and the bosses steadily eating away at pensions and the social wage while workers spend and extend their credit today and hope something will turn up for the future.

This situation cannot be maintained indefinitely. When the ‘giant hedge fund’ — which is how the Financial Times recently described the UK economy [10] — eventually collapses there will be massive repercussions for the working class, not only in terms of job losses but in terms of the collapse of a whole consumerist way of life. The situation will demand a response from the working class as a whole and there will be no shortage of reactionary nationalist parties ready to lead workers further down the road of capitalist barbarism. Only a political organisation that genuinely stands for workers’ interests will be able to halt that course. Those interests are none other than the communist programme of international solidarity for the overthrow of capitalism and the establishment of a global community which produces directly to meet human needs. This is the only practical way the working class today can look towards a better future.

Comments on Part Five, 2019

On re-reading this piece, what is striking about the picture of the working class in capitalism’s self-styled service economy in 2006 is how much it resembles the situation today. After decades of capitalist restructuring in the face of problems stemming from the declining rate of profit (problems by no means confined to the economy of the UK) there are now recognisable constants in the socio-economic profile of the ‘restructured’ working class. By ‘constants’ we do not mean that the circumstances in which working people live their lives are unchanging, but that the revolutionary organisation needs to be aware of long-term changes to “proletarian conditions” in order to strengthen its two way relationship with the class as a whole.

Even more remarkable, however, is that the condition of the working class today has apparently changed so little since the bursting of capitalism’s financial bubble. The central banks managed to avert a cataclysmic economic collapse, only to postpone the day of reckoning. Meanwhile the working class is locked into consumer capitalism even as it faces a thousand and one cuts to services and benefits in the post-crash world of ‘austerity’. On the employment front, many of the trends indicated in the article have continued, even accelerated, indicating that capitalism’s new economy signals anything but a new dawn of prosperity in a leisure society where robots do most of the work.

Without going through the whole article, it’s worth noting some of the changes that have occurred in the UK’s post-crash, austerity dominated, not-so-new economy. On the employment front, for example, the official figures show that the percentage of ‘workless’ households, where nobody has a paid job, has gone down recently (to only (!) 14.3% from around 16% in the article). This is not a sign of growing prosperity but of increasing desperation by people refused state unemployment and welfare benefits, a process that has become even more draconian under the post-crash ‘austerity’ regime that now goes under the name of ‘Universal Credit’. As the article here indicates, the state was already set to reduce the cost of maintaining the people who had been made unemployed during the years of de-industrialisation. Even before the financial crash Incapacity Benefit was under threat. It didn’t take the Labour government long to abolish it. In 2008 Incapacity Benefit gave way to the means-tested Employment and Support Allowance (ESA) accompanied by the now infamous health test known as Work Capability Assessment whereby even terminally ill hospital patients have been declared fit for work. [1] Similarly, an increase of approximately 2% in the portion of the workforce who are self-employed might be taken as a sign of a healthy capitalist economy. Yet a further glance tells us that there has been a massive jump in the number of 65-year olds and older who are ‘self-employed’. We suggest this is not so much a healthy sign of the number of fit and active ‘third-agers’ but of the growing number of people without a pension fit to live on. This, especially as the Office for National Statistics informs us that around 60% of small businesses consist of one person (compared to 10% in 2001) and 90% of start-ups now fail within a year, compared to around 10% in the article here. In fact this escape route for precarious workers may have reached its limit since the number of ‘self-employed’ is starting to drop. (From a peak of 4.8m in 2017 to 4.7m last year.)

As for the terms of sale of labour power, we need only mention the gig economy as a reminder of how much these have deteriorated over the last decade or so. Today more than 6 million precarious workers, variously described as self-employed or on temporary contracts are not covered by supposedly legally established workplace rights. [2] This is apart from the generally deteriorating conditions of employment for companies such as Amazon [3]; never mind the 2 billion unpaid hours worked last year (according to the TUC); not to mention the growing number of workers who are not officially doing any kind of paid work and whose wages are to say the least uncertain: variously known as the ‘black economy’ (now estimated to include around 3.6 million workers) or the ‘informal economy’ (estimated to account for 10% of GDP). Little wonder then that, despite a massive decline in trade union membership since its peak of 58% of the workforce in the late 1970s, union membership has increased recently to around 23% of the workforce. Females now outnumber male union members: a fact which may be linked to another fact that 55% of the lowest paid workers are women. In any case the union straitjacket is still a factor to be reckoned with in many battles of the working class and revolutionaries need to have a strategy to embolden workers to break loose from it. [4]

Meanwhile, as the Financial Times reports on “robust pay growth” that have brought real wages in the UK to hit an eleven year high (14.8.19) this needs to be tempered by the fact, for example that personal debt is now growing 6 times faster than wages, that 9.6 million households have no savings whatsoever, and that in any case “real earnings are still about £4 lower than the pre-recession peak”. No wonder then that a tendency towards a shorter working week has been reversed in recent years.

In sum, this brief update on the condition of ‘our’ local working class in an increasingly precarious, stagnating world economy only confirms that capitalism offers us no future. There is no question that the conditions of the modern proletariat confirm what Engels said about the right for socialist theories to exist. Beyond this, our investigations into the changing circumstances of the working class will hopefully serve to further our understanding of the prospects for developing a revolutionary perspective inside the working class. [5]


Part One

[1] From a section entitled ‘UK Economic Overview’. The site is “produced and maintained by British Information Services, a New York based Section of the British Embassy in Washington DC.”

[2] ‘UK Workforce Jobs by Industry’, published by the Office for National Statistics, December 2004. Although these are quite recent figures the number for manufacturing jobs is already out of date. By February this year that number was reduced to 3.2 million, again according to government statistics. Interestingly, the survey compilers explain that the 30.5 million total is “a measure of jobs rather than people”. In other words, since the total number of people in work is around 28 million (28.302 million, according to the same source in April 2004), a significant minority of the workforce have two or more jobs.

[3] Theories of Surplus Value (TSV) Vol.1 p.402, Lawrence and Wishart.

[4] op. cit. p.403

[5] op.cit. p.202

[6] op. cit. p.158

[7] The present day attempt to revive Adam Smith is more symbolic than real. Smith’s association with laissez faire has made him the guru of those who imagine that the ‘free competition’ from which monopoly capitalism developed can be re-established today. They are not so interested in reviving the labour theory of value which accompanied Smith’s analysis.

[8] See Chapter 16, on ‘Commercial Capital’ in Capital Vol.III.

[9] From Chapter 6, ‘The Costs of Circulation’ in Capital Vol. II, pp134-5 in Lawrence and Wishart edition.

Part Two

[1] In an aside on productive labour in the context of the total process of material production Marx clarifies that productive labour is not limited to those directly involved in the act of ‘working up raw material’:

“With the development of the specifically capitalist mode of production, in which many labourers work together in the production of the same commodity, the direct relation which their labour bears to the object produced naturally varies greatly. For example the unskilled labourers in a factory referred to earlier have nothing directly to do with the working up of the raw material. The workmen who function as overseers of those directly engaged in working up the raw material are one step further away; the works engineer has yet another relation and in the main works only with his brain, and so on. But the totality of these labourers, who possess labour-power of different value (although all the employed maintain much the same level) produce the result, which, considered as the result of the labour-process pure and simple, is expressed in a commodity or material product; and all together, as a workshop, they are the living production machine of these products—just as, taking the production process as a whole, they exchange their labour for capital and reproduce the capitalists’ money as capital, that is to say, as value producing surplus-value, as self-expanding value. It is indeed the characteristic feature of the capitalist mode of production that it separates the various kinds of labour from each other, therefore also mental and manual labour— or kinds of labour in which one or the other predominates—and distributes them among different people. This however does not prevent the material product from being the common product of these persons, or their common product embodied in material wealth; any more than on the other hand it prevents or in any way alters the relation of each one of these persons to capital being that of a wage-labourer and in this pre-eminent sense being that of a productive labourer. All these persons are not only directly engaged in the production of material wealth, but they exchange their labour directly for money as capital, and consequently directly reproduce, in addition to their wages, a surplus-value for the capitalist. Their labour consists of paid labour plus unpaid surplus-labour.” [TSV part one, Lawrence and Wishart ed. pp.411-2]

[2] op.cit. p.413

[3] “But the relation between buyer and seller of this service has nothing to do with the relation of the productive labourer to capital, any more than has the relation between the buyer and seller of yarn.” op.cit. p.412

[4] op.cit. p.165

[5] Financial Times 18.10.04

[6] TSV op.cit. p.411

[7] Quoted in the Financial Times, 13.5.05. For full quotation see the first part of this article in the previous issue.

[8] Depending on whether the media sector officially comes under ‘services’. The Office of National Statistics does not specify.

[9] Capital Vol. 3 p.286

[10] op.cit. pp.292-3

[11] Marx on money dealers’ profit, end of Ch.19 ‘Money Dealing Capital’, Vol. 3 of Capital, Lawrence and Wishart edition.

Part Three

[1] Economic and Social Research Council ( Fact sheet on the UK economy, February 2005; Growth in Gross Value Added (GVA), Office of National Statistics, August 2005 (; Financial Times report, ‘City of London drives surge in financial exports, 19th July 2005.

[2] Brown appears to have exaggerated in this Mansion House speech, 26 June 2002. the square mile itself claims its ‘financial services’ amount to 3% of GDP ( – but we are not in a position to check!

[3] Capital Vol. 3 p.316 (Lawrence and Wishart edition).

[4] op.cit. p.322

[5] op.cit. p.286

[6] ‘Capitals Against Capitalism’, p.18, Internationalist Communist 14, available from the CWO address.

[7] Capital Vol. 3 p.470

[8] op.cit. p.472

[9] From the City of London website quoted above, and the DTI’s on Financial Services.

[10] See ‘A built-in failure: capitalism and the housing question’, Revolutionary Perspectives 33.

[11] Financial Times 18.7.2005

[12] Capital Vol. 3 p.498

[13] See, for example, ‘Capitals Against Capitalism’; ‘Globalisation and Imperialism’; ‘Control Over the Oil Marker in an Epoch Where Finance Dominates’; ‘US Boom: Triumph of the Paper Economy’ in Internationalist Communist 14,16, 18 and 19 respectively.

Part Four

[1] See http.www.nationalstatisticsonline; and

[2] See Part Two of this series, ‘The Value of Capitalist Services’ in Revolutionary Perspectives 36. (

[3] This figure was reached simply by going through the numbers employed in the various occupations as listed in the 1861 Census. Available online at

[4] Theories of Surplus Value Vol. 1 p.201, Lawrence and Wishart ed.

[5] Capital Vol. 3 p.286, Lawrence and Wishart ed.

[6] Compiled by Craig Lindsay for the Labour Market Division of the ONS in March 2003. Available online from the ONS website.

[7] According to the Financial Times, 24.2.06, the latest ONS figures for the level of output per worker, which relate to 2004, show the UK as “below the average of all other countries in the Group of Seven leading economies…”.

[8] Financial Times 30.4.05.

[9] ESRC website op.cit.

[10] Financial Times, ‘Fears For Economy as Business Investment Falls’, 24.2.06 and also ‘Mergers and Equities Boost City Jobs Market’, 21.2.06.

Part Five

[1] From a TUC Economic Report: Small Firms — Myths and Realities, available on the Trades Union Congress website.

[2] Report on the work of Sheffield Hallam University’s Centre for Regional Economic and Social Research in the Sheffield Star, 4.3.05

[3] Office of National Statistics (ONS), ‘The Jobs People Do’, at:

[4] See ESRC (Economic and Social Research Council) website: Society Today. Another report by the TUC reckons that 4 million workers in Britain regularly work 48 hours per week.

[5] The figure is for 2003, ONS figures quoted by the ESRC ibid.

[6] The German Ideology.

[7] According to the Financial Times in an article entitled ‘Unemployment’s fastest rise in 13 years’, 19.1.06.

[8] Information from the ONS ( and and the Financial Times, 21.6.01.

[9] Professor Colin Talbot, ‘Black Economy Goes Far Beyond Illegal Immigrants’, University of Nottingham,

[10] Martin Wolf, writing in a series on ‘New Britain’, 18.9.06.

Commentary on Part Five

[1] Universal Credit – Universal Torment – Once More an Attack on the Conditions of the Whole Working Class

[2] The Gig Economy: Capitalism’s New Normal

[3] Amazon – A Modern Capitalist Microcosm

[4] Durham Teaching Assistants Fight On – Against Labour and their Unions , Durham Teaching Assistants – Not Finished Yet?

[5] Theses on the Role of Communists in the Economic Struggle of the Working Class

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