Overproduction

dms dmschanoes at earthlink.net
Wed Aug 13 21:20:58 MDT 2003


Here it is, as promised, or threatened, so have at it or not.

A note on sources:   Stats on profits, capital invest, and output are
available and taken from the US BEA and the Statistical Abstract of the US.

In addition the US BEA did a study on semiconductor unit cost reductions.
Other stats of semiconductor fabrication costs, sales, output, etc. are
available on the Semiconductor Industry Associations's website, however some
are available by subscription only.

Other information, i.e. the increase in Intel's revenue per employee was
taken from a Wall Street Journal report.
___________________________________________


The Wages of Overproduction



1. The Rewards of Empire

At a cabinet-level meeting of the faith-based initiative called the Bush
administration, boy George entered the executive office holding a stack of
envelopes in one hand and the bible in the other. "Mail call," called the
first male, licking his lips as he tossed brown envelopes to all present.
The officers of the state tore into their envelopes like school children
tucking into ice cream. Inside each envelope were three checks issued by the
US Treasury, payable to the officers of state as private citizens. Soon all
joined the President in the smacking of lips so appropriate to this banquet
of salesman, consultants, dissemblers, entrepreneurs, golf pros, dimwits,
extortionists, and con men.

These checks were not another in the series of tax refunds that had done so
much for so few. The President knew, because somebody had told him, that
these checks were better than tax refunds, although he wasn't sure that was
possible. The first check was the peace dividend, secured in the collapse of
the Soviet Union, realized in the destruction of Afghanistan, Iraq, Gaza,
the West Bank and collateralized by the insolvency of private pension plans.
The second check was a payment based on the complex formulas of the oil
depletion allowance, where the price of oil is adjusted to deplete earnings
from all the other endeavors of capital. The third check, by far the
smallest sum, was the profit sharing distribution of US corporate capital to
its bagmen. The Secretary of Commerce, chagrined, shrugged his shoulders as
if to say, "What can I say?" What he did say was, "Wasn't really that good a
year."

The President surveyed his ministers. He started to tell them not to spend
it all in one place, but the Vice-president interrupted him. Cheney knew.
What, where, and how much didn't matter. It would all be spent in one place.

2. Your Check is in the Mail

In 1991, the military victory of the US in the Persian Gulf was overshadowed
by the victory capital would achieve in conquering a bigger and better
target. Moscow. Compared to the money to be made in demolishing the social
base of the Soviet economy, the destruction of Baghdad was a distraction,
and so the position was closed out, temporarily.

Moscow, the dream of the millions of dwarf Napoleons, mini-Pauluses, midget
Pattons, was open to the future, the market, and most importantly, the
futures market. Shortage, scarcity, hoarding of goods; dismantling,
shuttering of the industrial plant; immiseration of the population in
general and dispossession of the workers from the work place in particular
raced through the economy, an army of disorganization and destruction
unencumbered by the need for resupply, an army organized against resupply,
replenishment, reproduction.

Capital was triumphant. More or less. The dawn's early light was the glow of
trash fires burning in Moscow, Manila, Mexico City. Letting freedom ring was
the opening bell of the New York Stock Exchange. There was liberty with
options and strike prices for all. Almost. Everything looked good when
backlit by piles of depleted uranium.

US capital, emerging from the recession of 1990-1991, securing the home
front advantage through the NAFTA accords, had two bulges in its pants
pockets, one guns and the other money, and was happy to see both of them.
Capital spending began a sustained long march where it increased its stride
by an average 12 percent each year. In 1994, the manufacturing sector
accounted for the single largest amount, some 28 percent of the total.
Within manufacturing, expenditures on motor vehicles and vehicle parts, and
communications equipment/computers were the largest components. The service
sector had the second largest expenditure, and 20 percent of that was
concentrated in auto and truck rental. The communications industry increased
spending 7.6 percent. Spending on communication and transportation as a
whole measured 25 percent of all capital spending.

Capital spending in 1996 was 30 percent above the 1994 level, with
manufacturing expenditures close to 200 billion dollars. Communications
spending had increased 40 percent from the 1994 level.

The pattern of capital spending increases was to continue. By 2000, US
capital spending was twice the 1994 level. Capital spending in the now
titled "information" sector increased 34 percent from 1999's mark. Spending
in wired telecommunications was up 31 percent. Spending for wireless
communications increased 77 percent.

The expenditures on communication, information, and transportation, in a
word- circulation, are expenditures on the realization of the value derived
from the exchange of capital with wage-labor. The expenditures are part of
the total costs of production. For the individual capitalist owning the
fleet of trucks, the locomotives, or the fiber optic network, money is spent
on these mechanisms to reduce his or her unit cost in circulation process.
And by 2000 unit costs for freight transportation had declined 50 percent
from the 1990 level.

For capital as a whole, improvements in the circulation process bring the
commodity to market faster and more cheaply, presenting not only a saving in
units cost, but an increased velocity of capital's turnover, and the
velocity of the turnover is critical to both the mass and rate of profit.

Between the appropriation of surplus value in production and the realization
of that value as profit there are the boundaries of time. It is in fact in
this gap between appropriation and realization that capital confronts its
self-contradiction as social production and private property. The exchange
between capital and wage-labor is only half-completed in the transformation
of social labor into private property through the production of commodities.
The commodities themselves, the private property itself, has to prove itself
socially necessary in relation to all other commodities, and prove it fast.
Capital organizes itself at every opportunity to compress the delay in the
process of realization. Production drives circulation forward, demanding
that its own speed be matched in the markets by the speed of the
transformations of commodities from values to objects and from objects to
expanded values. The time of circulation, the costs of circulation, are
absorbed into the reproduction of capital as part of the total cost of
production. The accelerated turnover of capital facilitated by improved
circulation both appears as increased cash flow and disappears as part of
the increased profits of capitalist production.



3. Your Separate Checks are in the Mail

The bourgeoisie see in the separation in time between production and
circulation, expropriation and realization, as more than a delay, and more
than an obstacle, but as the separation between production and value itself.
Realization is mistaken for creation. Cost and only cost is attributed to
production. Profit, and thus value itself is the result of the market.
Capital expenditures appear to exist only to reduce unit costs, to increase
productivity, output per hour. Yet, in making the improvements in the
machinery of circulation part and whole of reducing the costs and increasing
the velocity of the commodities brought to markets, these improvements
become necessarily improvements and costs of the production itself. Then
everything that occurs in the circulation of commodities, in the attempted
realization of profit, in the reproduction of capital is the reflection of
the primary exchange at the source of capitalist production, between
wage-labor and capital, a reflection of the expropriation of surplus value.

Certainly, the expenditures made in the 1990s did increase output and
productivity. Between 1992 and 2000 US manufacturing output increased 42
percent, and output per hour grew 50 percent. But more than that, or more
than equal to that, the capital expenditures positively restrained wage
demands of the workers. Real hourly compensation in manufacturing grew only
9 percent. In terms of purchasing power, while the increase in producer
prices between 1992 and 2001 reduced the power of the dollar used by
production owners by 12 percent, the increase in consumer prices reduced
purchasing power for wages by 22 percent.



Productivity, then, measured the accelerating expropriation of surplus
value, where the workers, as a class, reproduced the social equivalent of
the value necessary to sustain a relatively declining standard of living in
less and less time. That's the hard mouthful to swallow about the great boom
of the 1990s.

In specific sectors, productivity exceeded the 50 increase for all of
manufacturing. Productivity increased 60 percent in basic steel production,
70 percent in petroleum refining, 100 percent in coal mining, 400 percent in
telecommunications, and an astounding 1100 percent in electronic component
and semiconductor fabrication.

With the accelerating extraction of surplus value, both the rate and mass of
profits for US manufacturing increased with the rate of growth of profit
exceeding the rate of growth of sales. Between 1991 and 1997, US
manufacturing net sales increased 40 percent while net operating profit
increased 65 percent. Between 1997 and 2001, net sales grew 10 percent. Net
operating profit which had grown by 15 percent to year 2000, fell by almost
half, to mark a negative growth rate of 40 percent for the 4 year period.

Profit rates are calculated differently by almost every econometric group
who after all have to distinguish their statistical products from the other
products on the market, but all the such groups agree that 1997 was the peak
year for the profitability of US manufacturing. In a study released in 2002,
The Bank of England calculated the peak rate of profit for US manufacturing
occurring in 1997 and measuring 25.2(!) percent (see "International
Comparisons of Company Profitability," Economic Trends No. 587).

In 1997, investment in information processing equipment and software
accounted for 32 percent of all new nonresidential fixed investment. In 1999
information processing accounted for 34 percent of the total, and in 2000 it
reach 35 percent. The application of this technology to production and
circulation, to inventory and material requirements, to asset utilization,
meant that greater output could be achieved with reduced production costs,
and just as importantly to the process of general capitalist accumulation,
relatively stable production prices. Thus the boom era with its highly
touted "efficiency of the markets" was nothing but the reflection of the
tremendous technological inputs to production.

Capital imagines itself as the eternal, permanent, and ultimate creation of
the market. In reality the market merely reflects the exchange between
capital and wage-labor. Capital expands. The expanded capital, the expanded
inanimate property, then becomes the zero sum all over again and must
exchange ever more of itself with wage-labor. Thus the more capital
accumulates, the more it exchanges with wage-labor, the more it reproduces
wage-labor as a shrinking proportion of the process, the less capital
exchanges of itself with wage-labor. The rate of profit declines and the
very expansion of capital becomes the growing zero sum. Circulation then
realizes the declining rate of profit in the shrinkage of demand, in the
slowdown of reproduction, in the decline in the mass of profits. The falling
rate of profit is product and producer of overproduction.

4. A Brief Digression: Speculation: Your Options, Derivatives, Futures Check
is in the Mail, But the Mail is Delayed: after 1997, in Asia, after 2000 in
the US.

A New Neue Rheinische Zeitung, May-October, 1850/1998-2003

What appears to the superficial observer to be the cause of the crisis is
not overproduction but excess speculation, but this is itself only a sympton
of overproduction.....we shall enumerate only the most significant of these
symptoms of overproduction....

...Anyone who saved a penny, anyone who had the least credit at his
disposal, speculated in

railway [emerging market, internet, energy trading, fiber optic,
telecommunication] stocks [debt, currency, interest rate swaps] ...Printers,
lithographers, bookbinders, paper-merchants and others, who were mobilized
to produce prospectuses, plans, maps, etc; furnishing manufacturers who
fitted out the mushrooming offices of the countless railway [emerging market
internet, energy trading, fiber optic, telecommunication] boards and
provisional committees--all were paid splendid sums.... There gradually
arose in this period a superstructure of fraud reminiscent of the time of
Law and the South Sea Company [and the Savings and Loan debacle]. Hundreds
of companies were promoted without the least chance of success, companies
whose promoters themselves never intended any real execution of the schemes,
companies whose sole reason for existence was the directors' consumption of
the funds deposited and the fraudulent profits obtained from the sale of
stocks. [Hundreds of companies collapsed, companies which a year or two
before were heralded as vibrant, healthy, vital. Companies where real
productive assets had expanded at an astonomical pace. Companies whose
shuttering, destruction, bankruptcy was triggered by the self-devaluation of
capital as the rate and mass of profits declined from yesterday's, just
yesterday's high, and liquidation replaced liquidity as the demand of
creditors.].

5. Semiconductors: Capital on a Wafer, or, The Transubstantiation of Value,
or, Your Virtual Check is in the Email

Semiconductor fabrication has always been a cyclical business, but a
cyclical business with a difference. Over the past 40 years, the
semiconductor industry has achieved a compounded annual growth of 17 percent
per year. That's a big difference.

The capital investment requirements of the industry are enormous as the
production process can only circulate its capital and operating costs by
introducing accelerating speeds, power, and quality to each successive
product, thus devaluing its previous products, its previous capital
investments. Technical innovation in the production process through capital
investment reduces the unit costs of production in conjunction with the
technical innovation of the finished product.

The result of this juncture of technical innovation in both process,
measured by cost per kb, and product, as measured in millions of
instructions per second (MIPS) has been the dramatic decline in
semiconductor prices. Private and government organizations have taken on the
challenge of quantifying the adjusted price drop for semiconductors,
expressed in dollars per kilobit for the individual products of the industry
and for all products. The US Bureau of Economic Analysis has that ratio for
DRAM chips produced in 1975 at 1.8125. In 1995, the ratio was calculated at
.0030 or 1/600th of the 1975 ratio. For the total basket of products, the
index of prices in 1996 were less than half the index of prices in 1992. The
rate of growth of semiconductor prices for the period 1975-1985 is a
negative 36.9 percent per annum. For the 1985-1996 period, the annual rate
of decline was approximately 20 percent.

In the mid 1980s, Japan was the source of most of the world's DRAM
production. US companies, reluctant to invest in what had become essentially
contract bulk production, abandoned the field and retooled for the
production of specialty chips, microprocessor systems,

MOS logic chips, and flash memory products. Intel, which accounts for 80
percent of microprocessor sales, developed its "copy exactly" fabrication
plant system during this time, bringing these plants online in the mid
1990s. Revenue per employee, measured at $114,000 in 1985, climbed to
$461,000 in 1995. Overall corporate revenues tripled while the work force
had declined some 30 percent. The estimated capital investment in each new
fabrication plant was $1.2 billion.

For the semiconductor industry as a whole, product sales increased 265
percent between 1991 and 1995, leaping ahead 40 percent in 1995 alone, only
to collapse in 1996 as the industry had produced too many fabrication plants
extracting proportionately more surplus value from less labor and thus,
could not offset the reduced rate of profit. Sales declined 8 percent in
1996. Sales did not exceed the 1995 mark until 1999 when revenues were
reported at $149 billion.

At the same time as fabrication plants were being closed in 1996-1997, the
industry began again its cycle of technical innovation in production process
and product. This process centered around developing the 300mm fabrication
process, in which a larger wafer would be the basis for production, yielding
a greater number of processors, with each processor of greater quality than
the previous generations. The capital requirement for each 300mm fabrication
plant is estimated to be $2.5 billion.

Capital intensity in the production process, the increased value of the
instruments and products used in fabrication, had recorded a compound annual
growth rate of 13 percent between 1987 and 1995. Between 1995 and 1999 that
growth accelerated to reach 19 percent.

The microprocessor fabrication process was re-engineered to produce an
economically viable yield at a faster rate. Utilization of more advanced and
reliable manufacturing equipment, faster and better methods for wafer
inspection were employed to decrease the time from production to market.
Through this acceleration, the fabrication process sought to offset the
devaluation of its previous products and techniques.

Sales again rocketed forward, this time to $204 billion in 2000. And once
again, at their new historical peak, sales collapsed. In 2001, sales fell to
$139 billion. By the end of 2001, 34 fabrication plants, 11.5 percent of the
North American total, had been taken out of production.

By the very demands of its own process to realize profit, semiconductor
fabrication has replaced its cyclical nature with a structural predicament.
The industry itself recognizes that the 2001 contraction is more severe and
different in kind than the previous cyclical downturns. Capital spending in
2002 was 38 percent below the 2001 level.

The structural predicament is the result of the accumulation of capital
depressing the margin of profitability. The implied margin (revenues minus
costs, divided by total revenues) in the fabrication process had declined by
17.5 percent between 1993 and 1999, from 88.2 to 72.8. At a certain point
the expansion of production, the increase in the mass of profits cannot
offset this decline in margin, this fall in rate of profit. We call that
overproduction.

6. Your Check Has Been Lost, But the Bill is Due. Please remit.

If in the past, the years of Thatcher and Reagan and Jaruzelski and
Pinochet, capital sustained itself through reducing the standard of living
of the society as a whole, the workers in particular, and by creating more
and more impoverished poor, that "solution" while still available and still
utilized, is no longer sufficient. The structural predicament of capital is
no longer remedied by lowering wages, by aggrandizing more surplus value.
The structural predicament is the structure itself, the development of the
capacity productive apparatus beyond its capacity to reproduce enough profit
quickly enough. Now the capitalists, wedded not to production, not to any
objects of production, not to any need or use for such products, not to any
part of social framework necessary to sustain the previous growth of
industry, but only to property and wealth, sees in those articles and
objects, that productive apparatus, that social framework, in all that
accumulated, crystallized, labor a living threat. A threat no less real than
that of workers on strike.

The bourgeoisie, to preserve their property, have to attack and destroy the
existing productive capacity. The bourgeoisie sees a possible solution in
the South Korean "model," dismantling and selling off productive capacity;
or in the Russian "model," reducing GDP by half, life-expectancies by 40
percent; or in the Iraq "model," destroying outright the productive
capacity, infrastructure, welfare apparatus of an entire country.

The struggle against capital is the struggle for social expropriation of the
means of production. It is a collective act against the destruction of human
labor by the demands of private property. Those are the terms of the
struggle forced upon the workers, who organized as part of capital itself
must stand for the emancipation of all of society from the demands of profit
in order to achieve its own emancipation.










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