A word on “overproduction”

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A word on "overproduction"

Patrice Greanville

Overproduction is a Marxist term that confuses many people. Why is it that when society produces "too much of something"—say too many houses, cars, food, etc.,— it is a bad thing? And what about when the problem is general, when society produces "too much" of just about everything? (This quantity being, of course, quite subjective.)  Why is such abundance frequently feared and regretted in some influential quarters? Why does it portend a serious crisis?  For brains long accustomed to thinking that the central economic problem of humanity is deficient production methods, famines, seasonal shortages, and thereby scarcity, the whole thing is mysterious and plainly irrational.

The bafflement of the average person is understandable. S/he is using common sense, while the problem just outlined does not follow such logic, but the logic of capitalists, which, to put it politely, sees the world in what ancient moral philosophers would have condemned as perverse. A great deal of this perversity stems from the simple fact that capitalism, a system of extreme economic liberalism, is an irrational, mostly chaotic system, in which selfish motivations rule almost all major decisions. Indeed, despite profuse protestations of loyalty to Christian values, which prize compassion and selflessness, capitalism worships an antipodal God: institutionalised selfishness. Some of its most strident devotees, such as Ayn Rand, who still boasts a considerable following on many US campuses and beyond, proclaim this openly in their books.

As a social cell, the capitalist thinks and operates as a hyper-individualist. Collaboration with his fellows is abhorrent to his way of thinking (unless tactically convenient to get the upper hand), nor is the good of the whole group a matter that concerns him. As a rule, the collective consequences of his actions carry little weight unless they impact his calculations for maximum profits, his bottom line. Such an archetype—the lone entrepreneur, the captain of industry, the business visionary, etc.— is glorified in capitalist culture, just witness the immense adulatory literature, films and tv programs portraying such heroes, most incarnating the twisted social values of an Ayn Rand or Horatio Alger protagonist, as the ideal for one and all. The US, of course, is well known, even among fellow capitalist nations, for its peculiar brand of savage capitalism. (That's why while almost all rich capitalist nations have at least some system of universal healthcare in place, the US still lags badly behind, clinging to the "market solution" for such a critical field). Why this is so is a matter for a different discussion, but suffice it to say this mirrors the cultural evolution of the US, and the state of its class struggle).

But let's get back to the question of "overproduction".  Given its centrality, this topic has been discussed in numerous venues, so, for the sake of time economy, let me borrow here (at some length) from the work of Tyler Zimmer who provides a handy illustration of the sheer absurdity of the problem:

around 25 percent of U.S. industrial capacity is unused; and, of course, there are millions of people whose basic needs--for medical care, food, housing and more--continue to go unmet. These same problems are even more acute in other parts of the world.

Why is this the case? We're told that whatever other flaws it may have, capitalism is at least the most efficient, most innovative and most productive economic system. What explains this massive mismatch between what we need and what capitalism does?

One key reason for the mismatch is that capitalism is a system whose fundamental goal is profit, not human need. Capitalists make decisions about where and how to use economic resources on the basis of what maximizes their wealth.

But that's only part of the story. In addition to being based solely on profit, capitalism is also an unplanned system. The car's running, so to speak, but there's nobody at the wheel.

MAJOR DECISIONS about investment, production, distribution, employment, etc., are made by individual capitalist firms in an uncoordinated and atomized fashion. Each firm competes with others in the marketplace. And accordingly, each firm considers only its ownshort-run profitability.

When capitalists make decisions, they do so only in terms of how their actions affect their own bottom line. They don't--indeed, as we'll see, they can't--take into consideration whether human needs are being met. In fact, they rarely even take account of the health the capitalist system as a whole when they make decisions.

Capitalists look out for their own businesses. General Motors, after all, doesn't make decisions based on what's good for Toyota's or Honda's bottom line. On the contrary, GM looks for ways to beat these competitors and capture their market share--and, therefore, their profits.

Neither does GM attend to society's transportation needs as a whole--as a GM CEO once put it, their business is making money. Selling as many cars as possible is only a means to that end.

This has important consequences at the level of the capitalist system that Karl Marx noticed as early as the 1840s, when capitalism was still in its infancy.

One consequence is that there is tremendous pressure on each capitalist to keep up with rivals and invest in expansion, new technology, etc.

Imagine that you ran Toyota, and you learn that GM is expanding production of SUVs and investing in new technology to cut unit costs across its product line. You have to do something similar to stay competitive, or GM will take away your market share, and eventually push you out of business.

So you direct Toyota expand production of SUVs, invest in new equipment and cut unit costs. But not only is GM doing this--so, too, is Nissan and Ford and DaimlerChrysler and more. They're in the same boat and also have to keep up with the two of you.

At some point, however, capitalists across the whole industry are going to have a serious problem. At some point, all of the uncoordinated competition among auto manufacturers will lead them to collectively accumulate more equipment, plant and raw materials--more "means of production," to use Marxist terminology--than they can use profitably.

Simply put, the race for maximum profit will eventually lead all capitalists in a given industry into a crisis of overcapacity and reduced profitability--the basic elements of what Marx termed a crisis of "overproduction."

And once capitalists are stuck with more means of production than they can use profitably, economic mayhem ensues: investment grinds to a halt, workers get laid off en masse, businesses fail, factories shut down and communities suffer.

THIS PROBLEM is endemic to capitalism. Consider a few recent examples.

Hanjin, a major South Korean container shipping conglomerate, recently declared bankruptcy. As a result, more than 80 Hanjin ships carrying more than $14 billion worth of goods have been "stranded"outside major ports--prevented from docking and unloading--because port owners fear that the bankrupt Hanjin won't be able to pay them.

Commentators are now saying the global container shipping industry is in serious trouble. How did this happen?

Not too long ago, shipping companies went on a massive shipbuilding spree to try to capitalize on rapid economic growth in China. Each company, pursuing only its individual interest, accumulated massive amounts of capacity in order to snatch as large a share of the profits to be made as possible.

But eventually, capitalists in the industry accumulated more ships--not to mention the means of making ships--than they could use profitably, causing their profit margins to decline across the board.

Hanjin was the first to go down in flames, but more bankruptcies and business failures are sure to follow. As industry analysts are pointing out, "the only way to fix the oversupply of ships is with an unprecedented culling of the fleet that would scrap older vessels. But that could take years," Salon reported.

This, of course, is exactly the problem of overproduction that Marx identified in the 1840s.

Don't be fooled, however. If there are too many ships from the perspective of profitability, there isn't an "oversupply" of shipping from the perspective of human need. Think about all of the unnecessary suffering around the world, and think about how those ships could be used to overcome it.

This way of thinking, however, is foreign to capitalism. As far as the system is concerned, the only problem is reduced profitability--and the solution is to restore it by destroying "excess" capacity.

Consider another example: The financial meltdown that began in 2007 and nearly brought down the whole global economy had a number of causes. One of them was overproduction in the housing sector. Scores of investors had poured capital into building new homes because, for a time, it was very profitable to do so.

So there was a massive construction boom--high-rise condos went up in central cities, while entire subdivisions of single-family homes sprang up on the outskirts of those same cities.

But at some point, the uncoordinated individual race for profit by competing investors led to a situation where there were more homes produced than there were people who could afford to buy them at a price that would yield a decent profit to the sellers. And so this problem of "overproduction" helped plunge the world economy into crisis.

Like with shipping, overproduction didn't mean that too many homes were produced--after all, there are millions of people in the U.S. alone who desperately need but lack adequate housing.

CRISES OF overproduction occur because capitalism regularly produces more goods than can be sold at a profit--and profit, not human need, is what makes the wheels of the system turn.

(SOURCE: THE SENSELESS CAUSE OF CRISIS UNDER CAPITALISM, Tyler Zimmer, SocialistWorker.org, October 6, 2016). Note: Quotations do not signify a general endorsement of a specific Marxist tendency.

The above can be clarified further by noting that, at its core, the overproduction crisis originates in capitalism's "social relations of production." Under capitalism, its social relations, with the capitalist purchasing the worker's labor power (the only thing s/he has to sell in order to survive), also determine how the transaction will be decided, and therefore how the total social income—the pile of goods and services produced—will be distributed. This bears stressing. Since the capitalist enters the transaction usually in a much stronger position—he has a hoard of money and goods that could permit him to survive far longer than the worker, not to mention the assistance of the machinery of the state— executive, judicial, police, etc. (which the capitalist completely controls), s/he can skew the terms of the transaction to contract labor inputs to his taste and advantage. Usually, as predicated by most Marxian economists and even classical and neoclassical economists like Ricardo or Samuelson, the worker is paid just enough to provide a "living wage", that is, subsistence income. As a rule, if a worker contracted for 8 hours a day is paid for only four hours' worth of labor (his/her supposed "subsistence wage"), and NOT paid for the additional four hours of labor s/he contributes, this difference constitutes the surplus or profit pocketed by the capitalist. At this point, we can easily see how this imbalance can create a problem in the marketplace, and for the system as a whole. First, since the skewed distribution of income stemming from the capitalist social relations define the system, that is, it cannot operate in a different way, then it follows that from time to time the accumulated consumption ("demand") deficit will grow into a general crisis, crashing the whole system. In economic parlance, the pile of goods produced cannot "clear" the market.

Historically, overproduction has detonated most capitalist crises. All "solutions" have so far proved inadequate. Now the top elites are dreaming of depopulation and "degrowth" to stabilise their system.

Some bourgeois apologists argue that this typical deficit in working-class demand can be compensated by capitalist investment, and/or their own extravagant consumption, but this has been shown not to be the case for a variety of reasons, including the fact that when the economy is showing signs of slowing down, that is precisely the moment when capitalists decide it may not be the best moment to invest. Or, just as likely, there could be unused capacity built up from previous miscalculations. As for extravagant consumption by the capitalists, despite the horrific and often insulting excesses, this usually also falls way short of the necessary consumption level to stabilise the economy—after all, how many yachts, mansions, cars, private jets, clothes, food, grotesquely priced jewels and accouterments— can a big guy consume before they become a burden to administrate or simply enjoy? Capitalists, who can accumulate money at prodigious rates, rarely invest all their disposable capital, most dedicating a hefty portion to savings and market speculation (i.e., stocks buybacks) a "lateral transaction" which does nothing to retire products from the market.

Self-liquidating solutions
Over the years, capitalists have developed a toolkit of "solutions". Some are outright criminal, such as the reliance on wars, which recreate demand by wholesale destruction and reconstruction, the expanded sale of weapons, etc. Since 1945, and the end of WW2, the US has been almost continually at war. Korea, Vietnam, Iraq, Afghanistan and now Ukraine are excellent and eloquent examples of this built-in trait of the depraved US socioeconomic system.

Other approaches are a bit more civilised. Count here the Keynesian formula of having the state take an active role in demand by commissioning public works, social services, providing employment insurance, etc., (an approach exemplified by FDR during the Great Depression), and patching up chronic deficient demand by extending retail credit to millions of households and individuals.

Finance capitalists—the bankster class—love this approach as they not only "stabilise" the tottering economy, but also reap near-usurious interest. Eventually, however, these solutions come to an endpoint where they simply no longer suffice. As we said earlier, by definition, the capitalist system is predicated on retaining for the capitalist class a hefty portion of the total value produced. That means it is a system designed with a lethal flaw—a built-in imbalance—an inequality——wherein the vast majority of the people lack the necessary income to buy back what they themselves produced. This dictates periodic crashes to regain equilibrium—the infamous cycle of "boom and bust", sold to the public as the inevitable price for the "privilege" of living under capitalism. Unfortunately, all the shyster talk in the world cannot hide the truth: keeping a capitalist economy healthy and stable is like trying to balance a pyramid on its apex. No matter how you spin it, its nature is to fall. For this NOT to happen, we would have to see a society in which all the workers were paid exactly what their labor was worth, minus some portion dedicated to the collective good (i.e., road and housing construction, education, food production, transportation, vast healthcare networks, etc.). Such a society would not have to worry about disequilibrium.  Of course, that kind of society would not be capitalist; it would be socialist.

Capitalism and its "overproduction" problem issuing from its unequal social relations are also intimately connected with a related absurdity: great advances in technology, such as mass assembly lines, automation and other forms of more rational and efficient production, are to be often feared and braked due to the probable political headaches they may cause.

More than a century ago the Luddites already knew that machines would liquidate their jobs. For under the rules of capitalism, with capitalists only looking at the profit margins, not the general welfare, or even the well-being and survival of their own class, any advances in productivity dictate greater unemployment—why pay "superfluous workers"?—which naturally further reduces the total effective demand o the working class. It is in this matrix of iron relations, so to speak, that we can see how the digital revolution, which continues to speed up and improve production, also creates an increasingly unmanageable crisis for the global capitalist class. Eventually, we may reach a sort of perverse singularity where just a handful of workers will be needed to produce a mountain of goods. This, under capitalism, would leave a growing mass of impoverished workers as wards of the state, a state also severely weakened by perennial capitalist corruption and a smaller tax base due to a shrinking economy. It's an impossible equation.

Conclusion
As capitalism continues to toxify its captive sphere while seeking relief under imperialist options, the ruling elites will continue to enjoy their regal lives inside a bubble of unreality and indifference that will block any kind of timely and above all peaceful transition to socialism. Under such conditions, the road ahead is liable to be bumpy, but history offers invaluable lessons. All we need to do now is interpret them with wisdom and compassion. I'm sure that new leaders will arise to fulfill that mission.