Theory: The crisis of overproduction and the price of oil

‘Overproduction’ of what, exactly?

First and foremost, of capital itself.

For capitalism to survive, capital must constantly reproduce itself and expand via commodity production. When demand fails to keep pace with production, the avenues for profitable investment start closing down, and whole sections of capital are rendered superfluous.

Why does demand dry up in this way? Because of the contradiction at the heart of capitalism: social production versus private appropriation. With one hand capitalism unleashes new productive forces: ever more advanced machinery, ever more cultured proletarians. With the other hand, it disrupts and holds back those same forces: wasting natural resources, perverting social production away from real social development needs, wiping out the very productive capacity whose construction it has overseen, and finally plunging the world into barbarism and war.

Demand for commodities does not dry up because human needs are satisfied, but because workers’ pockets are empty. Demand dries up because capitalism is congenitally incapable of organising planned, balanced, productive growth.

Demand dries up because the only possible bourgeois response to flagging profit rates is to hasten the immiseration of the world’s masses, thereby further depressing demand.

Why do the profit rates flag? At the most fundamental level: because profits can only stand on the foundation of surplus value, and surplus value can only be sweated from exploited human labour. The problem for capitalism is that every new advance of productive technique alters the composition of capital in such a way as to narrow the scope for the exploitation of human labour. As a result, the scope for generation of surplus value is likewise narrowed, and therefore also the scope for profit taking.

The reality of this is generally lost on the capitalist. Having the technological edge on your competitor yields a clear market advantage in the short term. However, once the older production methods are superseded, the exchange value of the commodity will be determined by the lower amount of socially necessary labour that it absorbs, thanks to the technological advance. At a stroke, this removes the erstwhile competitive advantage and reduces the scope for generating surplus value, and therefore profits.

This nasty reality is still largely hidden from the capitalist, because absolute growth of production can do much to conceal the relative loss of profitability. For long, this canker at the heart of capitalism can remain a secret, so giddy is the expansion of capital’s field of operations, and so vast is the colonial loot with which capitalism can replenish itself.

But the contradiction never goes away. It was the advance of productive technique that originally necessitated the supersession of feudal social relations by capitalist social relations. Yet that same progress of social production technique has again and again reared up as an enemy to capitalist profit taking.

From the point of view of the capitalist, this has meant that the very success with which science has been applied to production, making work more productive and less labour intensive, has been a fetter on the generation of surplus value, and therefore on profits.

From the point of view of the rational development of human society, however, it is the archaic persistence of the capitalist’s private appropriation of the fruits of production that is acting as a fetter on the growth of the productive forces. Not coincidentally, this latter view is also that of the proletarian revolution.

The eve of revolution

Precisely because that central, self-negating contradiction of capitalist society is so well camouflaged, it is sometimes essential to take a step backwards and shrink the whole of capitalist history in the manner just attempted. By so doing, it is possible to strip this period of human social history down to its bones, the better to reveal its transitional character: not the ‘end of history’ but the eve of revolution.

But as with all political abstraction, the virtue of this step backwards will be lost unless we then plunge back into the concrete and topical, to analyse and expose what is fresh, unique and urgent about the current crisis of the imperialist system. Where better to start than the price of oil?

For people living in Britain, the rising oil price is experienced as an additional household expense when it comes to filling up the family car.

For industry and transport, it is another burden for which compensation will be sought from the public purse. Questioned as to the cause of this annoyance, most will make reference to the fuel tax and ‘terrorists’. Some will point to the finite nature of fossil fuels. What nobody can be expected to grasp intuitively is the central role in all this of the overproduction crisis of imperialism.

After all, the problem is supposed to stem from a shortage of oil. How can a shortage possibly be blamed on overproduction? Surely, US imperialism is putting maximum pressure on its chief economic fifth column inside OPEC, Saudi Arabia, to pump more oil out, so as to meet demand and pull down prices?

To answer this question, it is worth listening carefully what the capitalists are saying to each other about the spike in prices and the ‘shortage’ of oil. The Financial Times (16 June 2004) reports BP’s chief economist as saying that world oil reserves last year rose by nearly 10 percent, “providing enough to last for 41 years at current rates of production”. The not unreasonable conclusion is drawn that the “recent surge in oil prices had nothing to do with the threat of depleted reserves”! The Guardian of 2 June 2004 reported a similar admission from OPEC analyst Geoff Pyne, noting that OPEC “only has limited scope to do anything about the price. There is no real shortage of supply”!

Yet the seeming dearth of oil is no more a simple invention of the capitalists than is the seeming glut that appears at other times. ‘Surplus’ oil, in capitalist terms, is not defined as oil that is surplus to social requirement, but a commodity that cannot command a demand market for sale at a level of return which will enable capital reproduction to proceed uninterrupted. An oil ‘dearth’, conversely, is not defined as ‘not enough oil to keep everything running that needs to keep running’, but as ‘not enough of the oil commodity as would be required to maximise profits commensurate with the full scope of the current available demand market’.

In neither case does the ‘glut’ or the ‘dearth’ bear any direct connection with the level of social need at any given moment. The only social need consulted is the need of a small minority of monopoly capitalists to continue maximising their profits at the expense of everyone else. Marx pithily summed this up by observing that in the midst of hunger there is ‘too much’ food, and in the midst of barbarism there is ‘too much’ civilisation.

The ‘shortage’ of oil is not a straightforward fabrication, not a lie as such, but, rather, startling evidence of capitalism’s failure to prevent its own contradictions ripping through its best-laid plans and fouling up the very exploitation racket on which its power and privileges depend.

So why, in this capitalist sense, is there now a shortage where once there was a glut? Again, it’s best to hear it from the horse’s mouth. The Financial Times of 1 June 2004, in an article about the profits currently being taken in the refining of oil, observed that: “High margins are largely a result of the reduction in US refinery capacity after the spate of big oil mergers during the 1990s. The number of refineries has fallen by about two-thirds over the past 20 years to approximately 150, and total capacity has dropped to less than 18m barrels a day from 19m bpd at the start of the 1990s.”

So what we are looking at is a capitalist glut of production in the 1990s forcing on a series of huge mergers, concentrating capital into over fewer hands and slashing ‘excess’ capacity – and preparing the ground for today’s bottleneck in production, where all the surviving refineries are working flat out, revealing a dearth of capacity. (The feel-good FT piece, stressing the fat profits being reaped by the refining wings of the oil majors, rather misses out on the pain and chaos this spasticity of supply is inflicting on capitalism in general.)

This picture of mergers and acquisitions now painted in such lurid colours in the financial pages of the capitalist press in fact conforms precisely with that drawn by Lenin in his work, Imperialism, The Highest Stage of Capitalism. Nor is this phenomenon limited to the oil majors alone, but is repeated across the economic landscape, from big pharma through to arms manufacture. Most significant of all has been the mergers of banks and finance houses, advancing that subordination of industrial to financial capital on which Lenin laid such emphasis.

It is in that context that we should view the extreme prominence of financial speculation, not least in oil futures. Far from this reckless gambling being a superficial blemish on capitalism, such speculations are the quintessential expression of the moribund and parasitic character of capitalism in its final, imperialist stage of development. When we are informed by the Financial Times (26 May 2004) of a “niche group of unknown investors holding a significant portion of the total outstanding crude-related energy contracts on the New York Mercantile Exchange”, a volume equating to “about four and a half months’ worth of global consumption”, the impression left is less that of a bunch of Svengalis holding world oil production in the palm of their hands than of a financial system so over inflated with artificial credit creation, so remote from any confident long-term future of steady economic growth, so seized by the crisis jitters as to be well-nigh incapable of controlling anything at all.

BP says that oil production had stayed ahead of consumption in 2003, noting that “much of the excess production was used to fill inventory shortages from the previous year, when OPEC cut production sharply in a weak period of consumption”. (Financial Times, 16 June 2004) The article then goes on to confuse matters by blaming the Twin Towers attack for the collapse in demand. It certainly is the case that the economic laws of capitalist crisis will increasingly be played out to a drumbeat of war and revolution, and it can be safely predicted that anti-imperialist revolt will make more or less skilful use of whatever opportunities present themselves to inflict defeats and setbacks upon the permanent violence of imperialist oppression and exploitation.

However, it is the contradictions of capitalism itself that are creating the conditions for its failure and overthrow, as the overproduction crisis destabilises every corner of productive existence.

The pattern is clear. The day before yesterday: glut. Yesterday: mergers, wiping out of ‘surplus’ capacity (factory closures, unemployment). Today: ‘shortage’ and renewed dislocation of production. And tomorrow? Tomorrow: yet more instability, a yet sharper battle for markets, yet more attacks on the welfare and security of the masses, and yet broader masses drawn into resistance against imperialism.

No matter how arbitrary such movements appear, explicable to the bourgeois economist only in terms of the hysterical mood swings of the gods of supply and demand, or the malign influence of OPEC (behaving like the ‘wrong kind of monopoly’), or the actions of so-called ‘terrorists’, the reality is that it is still ultimately labour that determines value and value that determines price, however unevenly that determination operates and with whatever delays those economic laws assert themselves.

Prices may appear to emancipate themselves from any connection with exchange value, especially under the distorting pressures of monopoly. A few short years ago, bourgeois economists even dared dream of a ‘new economic paradigm’ in which the normal laws of capitalist production would be suspended and boom would go on for ever, like the fabled perpetual motion machine.

But such attempts to banish exchange value from the realm of prices, and thereby to ignore the role of labour in the creation of value, look pretty sick now, as the US dollar sinks through the floor, US deficits go through the roof, inter-imperialist relations are soured by trade and currency wars and the world is plunged into warmongering crisis.

What has presented itself in the form of a rise in oil prices may be in one sense a restoration of something like its true value. Anglo-American imperialism’s monopoly stranglehold on the oil market, so far from having been rendered more confident by the slaughter in Afghanistan, Iraq and Palestine, has become even more nervous and panicky. For the moment, it appears that the price of oil is actually being driven closer to its real exchange value than has been the case for a long time.

The threat to monopoly capitalism in this sphere is in part sectional – the sharpening rivalry between Anglo-American imperialism and the competition. The threat is also posed by those nations (like Venezuela) that resist the repatriation of profits derived from their own natural resources back to metropolitan coffers. And, of course, the threat to imperialist control of the oil market is most spectacularly displayed in the courageous acts of resistance against imperialist aggression which are now erupting across the Middle East, Colombia and elsewhere.

But the destabilisation of the world economy is first and foremost the work of imperialism itself. It is the overproduction crisis that sends the markets spinning from capitalist ‘glut’ to capitalist ‘dearth’ and back again like a demented yo-yo. The prime threat to imperialism’s control of the oil market, underlying every other threat, is rooted in the insoluble contradictions of capitalism itself.

The rocketing price of oil cannot be explained simply by pointing out that currently both Iraq’s major oil pipelines (both the northern line draining oil from the Kirkuk field to Turkey and the southern line draining oil to the port of Basra) have been put out of action by the resistance, “leaving the country [ie, Anglo-American imperialism] without foreign earnings from oil exports in the short term”. (Financial Times, 17 June 2004)

The unfolding national democratic struggles against renewed colonial domination of the Middle East are indeed having a devastating effect on the imperialist enemy, and deserve the warm support of all those in the British working class struggling to break with social democracy. Like all forces of progress in the world, they make headway by learning to make skilful use of the opportunities thrown up by the chaos and destruction imposed by imperialist crisis. But it is always and everywhere imperialism itself that is the origin of that chaos and destruction, not those forces who seek by whatever means to resist it.

Now is the time for communists in Britain to be studying the contradictions driving on the crisis of imperialism. We too need to be learning how to take maximum advantage of the opportunities which that crisis presents for the advance of the proletarian revolution. In doing this work we are strengthened by the reserves of the proletarian revolution represented by the socialist states of China, Cuba, Vietnam, Laos and the DPRK (North Korea). We are strengthened by the anti-imperialist resistance springing up in arms around the world. And we are strengthened by the indelible example set by the great revolutionary achievements of the Soviet Union, led by the CPSU in the time of Lenin and Stalin.

With these reserves at its back, augmented by the broken but unforgotten proletarian revolutionary traditions of the British working class, Marxism-Leninism advances with confidence.

Postscript

With oil prices now approaching $40 a barrel, the exploiters are getting into a frenzy of finger pointing, assigning blame to everything except the imperialist system itself. The Financial Times of 7 July 2004 tells us today that Michael Rothman (chief energy strategist at Merrill Lynch) identifies three causes for the price hike: “Total’s problems in Nigeria, security concerns over Iraq and the long-term viability of Yukos, one of Russia’s top producers facing a $3bn tax bill.”

So not only is European market rivalry piling pressure onto US monopoly positions at the very time that the Iraqi resistance is most severely humiliating US imperialist prestige, but the French competition is running into problems of its own (reportedly from Nigerian oil workers unhappy with the terms of their exploitation). Meanwhile it turns out that making the counterrevolution stick in the former land of the Soviets is proving a whole lot trickier than the cold warriors ever dreamed possible.

All these contradictions – between oppressed nations and oppressor nations, between exploited workers and capitalists, between rival gangs of exploiters, and between proletarian dictatorship traditions and the doomed camp of counter-revolution – will get sharper and sharper, driven on by the crisis of surplus capital. That is why we continue to live through the epoch of wars and revolutions.