Class, Crisis and the State by Erik Olin Wright

Author:Erik Olin Wright
Language: eng
Format: epub
Publisher: Verso Books

3. Theories of the Profit Squeeze

Both underconsumptionists and organic-composition-of-capital theorists maintain that with capitalist development there tends to be a rising rate of surplus value. Where they differ is in their view of the relationship between this rising rate of surplus value and the movements of the rate of profit. The organic-composition theorists insist that changes in technology within the production process itself tend to negate this rise in the rate of surplus and thus produce a fall in profits; underconsumptionists argue that the forces for a rising surplus tend to be stronger than any counterforces, especially under conditions of monopoly capital.

The proponents of the profit squeeze view of crisis agree with the organic composition theorists that the rate of profit tends to fall, but they disagree that this has anything to do with changes in technology, and they disagree with both the organic composition theorists and the underconsumptionists that there is any tendency for the rate of surplus value to rise.

The essential argument of the profit squeeze is very simple: the relative share of the national income going to workers and to capitalists is almost entirely a consequence of their relative strengths in the class struggle. There is therefore no intrinsic reason for wage struggles to be limited, even in the long run, to demands that real wages should rise merely as rapidly as productivity. To the extent that the working class develops a strong enough labour movement to win wage increases in excess of productivity increases, there will be a tendency for the rate of profits to fall (to be “squeezed” by rising wage bills). Such a decline in profits results in a corresponding decline in investments and thus even slower increases in productivity. The end result is economic crisis. Conditions for profitability are restored to the extent that as the reserve army of the unemployed grows during a crisis, the bargaining strength of the working class relative to capitalists declines and thus the profit squeeze is lessened.

The profit squeeze thesis has been used both as an explanation for business cycles and as a theory of structural crisis. Raford Boddy and James Crotty have applied the profit squeeze argument to an analysis of the relationship of macroeconomic state policy to the business cycle. They write:

“Throughout the post-World War II, post-Keynesian period, the profit share of income, indeed the absolute level of profits, has fallen in the latter half of every expansion. Correspondingly, wages and wage share have risen. We view the erosion of profits as the result of successful class struggle waged by labour against capital—struggle that is confined and ultimately reversed by the relaxation of demand and the rise in unemployment engineered by the capitalists and acquiesced in and abetted by the state.”43 Cyclical downturns in the economy are thus portrayed primarily as devices for disciplining the working class.

The most extended attempt to use the profit squeeze argument as the basis of a theory of structural crisis rather than simply business cycles has been made by Andrew Glyn and Bob Sutcliffe in an analysis of the stagnation of British capitalism since the mid-1960s.

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