The April Collapse

In early April, MG Rover finally declared itself bankrupt and called in the receivers. This followed the failure of a rescue deal, under which the Chinese car manufacturer Shanghai Automotive Industry Corporation (SAIC) was to invest £ 1 bn in Rover. Apparently SAIC, which has already invested £ 67 million in Rover, backed off when they discovered the true state of the company's debts and liabilities.

When the collapse appeared likely the government got involved offering minor concessions such as temporary tax relief, e. g., on VAT, and sent officials of the Trade and Industry department to Shanghai to try and sweeten up the Chinese. Rover was demanding a government bridging loan of £ 100 million which was probably not enough, but which the government was unwilling to provide anyway. All this was the prelude to the collapse of Rover.

Rover represented the last volume car manufacturer in Britain owned by British capital and the collapse therefore had a symbolic significance greater than its real economic significance. It marks another milestone in the collapse of British manufacturing and British industrial capitalism.

For the workers at the Longbridge plant this means redundancy and it is expected that in addition to the 5500 Rover workers themselves about 18 000 related jobs in parts and suppliers will go. It also brings the bitter lesson that all the sacrifices and extra work which they have been conned into putting into the Rover enterprise have been in vain. The collapse has been meekly accepted by the trade unions who have shown themselves to be part of the management's apparatus for disciplining the working class and making their members swallow the bitter medicine which capitalism prescribed to restore profitability.

Workers at Rover have not struck for 12 years and the unions have got them to accept every management scheme the bosses have dreamed up to increase productivity and hold down pay. Changes in work routines, flexibility, job cuts, speed-ups, pay increases below inflation, etc.: all these things have been pushed through by the unions. It is now admitted that, after the takeover by Phoenix in 2000, the crisis atmosphere was used by the new management and the unions to push through redundancies and re-organisation which would have been impossible without the threat of closure. Almost 40% of the workforce has been made redundant under the Phoenix regime. Before this, the unions supported BMW's “Team Rover” and “working time” deal to implement BMW's productivity and flexibility measures.

All this shows once more how the trade unions accept the logic of capitalism and act as the agent of the capitalist class in persuading workers to accept the measures required to produce profitable industries. After all the sacrifices which the trade unions have forced the Rover workers to accept, the best Tony Woodley of TGWU could say about the closure was that it was a “sad day”. In fact Woodley and Simpson, leader of AMICUS, produced a joint statement with Hewitt, minister of trade and industry, on the closure. This again illustrates how integrated the unions are in the capitalist state and the role they play as the fifth column of the capitalist class. Of course, the next step is to get the government to put redundancy money and retraining money on the table and then they can present this as the best they can do and a great victory under the circumstances.

In fact, many workers are owed back wages, some over £ 1000, and the management, the infamous Phoenix Four ⁽¹⁾, have under-funded the workers' pensions by some £ 67 million. Redundancy payments may be as little as £ 5000 and, in addition, many workers, who were encouraged to take out personal loans to buy Rover cars, will be saddled with enormous debts.

Rover's problems - a symptom of capitalism's problems

The collapse of Rover is the final chapter of a long saga of changes and restructuring of the British motor industry which has unfolded in the period following World War II. It is not, however, an accidental development limited to the British car industry as the recent reorganisation of other manufacturers in the UK and worldwide shows. Ford's Dagenham plant and Vauxhall's Luton plant have both been closed. GM has closed its Opel plant in Germany, and has recently announced a $1.1 bn loss for the first 3 months of 2005, while Ford's profits dropped 38% in the same period. The current difficulties at GM and Ford have resulted in their bonds being downgraded to “junk” status in the US markets. Far from being accidental, the developments at Rover illustrate a general trends within capitalism and particular counter measures which the capitalist class is adopting to oppose these trends in the core capitalist countries. Three specific issues, which we wish to consider below, are illustrated by the Rover story. These are:

• The crisis which capitalism faces is one of profitability ⁽²⁾ and the measures which capitalism is taking to restore profitability are precisely those outlined by Marx in “Capital”.
• The economies of the core countries of capitalism are no longer able to counteract the fall in profitability. The structures of the economies of the core countries are changing in respect to this, and manufacturing is being relocated in areas of cheaper labour power.
• The changing role of the state in the protection of national industry and the bankruptcy of the idea that nationalisation of industry is a step towards socialisation of the economy.

Crisis of profitability

The real barrier of capitalist production is capitalism itself. It is that capital and its self expansion appear as the starting and the closing point, the motive and the purpose of production; that production is only the production of capital. ⁽³⁾

Marx, Capital

Michael Edwardes, who was the boss of Rover in the '70's and '80's when it was a nationalised company made the famous statement to his staff, that:

We are not here to produce cars. We are here to produce a profit.

Capitalist production is, as Marx says, a process of expansion of capital, a process of capital accumulation, and for this to occur it is essential that capitalism produces profits as the representatives of the bourgeoisie never tire of telling us. It is the production of profit, however, which is the Achilles' heel of capitalism. It is the problem of producing profits rather than the problem of finding markets for its products which leads to capitalism's crisis. With the development of the productivity of labour each commodity produced, in this case, each vehicle, contains within itself less profit. This represents a desperate problem for the capitalist class and their attempts to solve it are what really underlies the economic history of the last three decades. The developments at Rover illustrate two principal ways in which capital attempts to overcome these problems. The failure of these attempts indicates their long term insolubility and is the harbinger of more acute crises ahead. Before discussing these counter measures it is necessary to briefly outline Marx's explanation of the tendency of the rate of profit to fall.

The rate of profit

Marx showed how it is only living labour, namely workers, which has the ability to produce what he called “surplus value” or profit. This is because it is only living labour which has the ability to produce more value than it requires to reproduce itself. Put simply, this means that workers produce the value of their wages in a fraction of the working day and work unpaid for the capitalist for the rest of the time. Marx went on to show how the rate of profit has a tendency to fall. He showed how capital advanced at the start of a cycle of production could be divided into two parts.

The first was the “constant” capital c which was not altered in value by the process of production, hence the term constant. This consists of raw materials, machinery, buildings, etc.

The second was the “variable” capital v which was advanced in wages to the workers. This portion of the capital he called variable since in the process of production the workers increase it and generate a surplus s. Hence, for any cycle of production the original capital advanced (c+v) is transformed into (c+v+s). The rate of profit is simply the ratio of the surplus s to the original capital advanced c+v, or: rate of profit = s / (c+v).

Marx showed how the development of the social productivity of labour involved increasing the constant capital, which tended to increase the denominator of the expression, (c+v), faster than the numerator, s. Hence, there is a tendency for the rate of profit to fall. This fall in the rate of profit leads to competitive struggle among the capitalists. They are forced to try to restore profit rates. It is obvious from the expression for the rate of profit that there are two basic ways for capitalists to increase profit rates. The first is to increase the value of the numerator s and the second is to decrease the value of the denominator (c+v).

The history of Rover since the start of the crisis period in the early 1970's has been a history of the attempts of management to reverse falling profitability by either one or the other, or both of these methods combined.

The British car industry emerged from the war relatively unscathed and was able to become the second largest vehicle exporter in the early 1950's. Car production for BMC, Rover's predecessor, was profitable up to the 1970's. In 1962, for example, BMC was making a return on capital of 13% - a rate which was near that for British industry as a whole. By 1967, this rate had slipped to 3.7% ⁽⁴⁾ and in 1968 it merged with the truck maker, Leyland, in an attempt to halt the slide. However by the early 1970's the group was staggering from crisis to crisis and in 1975 it was nationalised and became BL. Table 1 below indicates the progress of the company in its various incarnations form 1975 to 2005.

Increasing productivity

The rate of profit s / (c+v) can be written (s/v) / (c/v +1), where the ratio of the surplus produced by workers s to the value of their wages v, or s/v, is what Marx called the rate of exploitation of workers, and the ratio of the constant capital c to the variable v, or c/v, is what he called the organic composition of capital. Looking at the expression written in this way it can be seen that the most obvious way of restoring profitability is to increase the rate of exploitation s/v. This can be done by increasing s while v remains the same or by directly decreasing v. There are two ways of increasing s while v remains constant. On the one hand, the time the workers work without pay can be increased and the time in which he produced his wages can be reduced. This Marx called increasing the relative surplus value. On the other hand, the working day can be lengthened. This directly increases the amount of time the workers work without pay. This Marx called increasing the absolute surplus value. A direct decrease in wages will, of course, also increase the rate of exploitation and so the rate of profit.

It is clear from Table 1 that throughout the three decades since nationalisation the bosses at Rover have attempted to increase the relative surplus value squeezed out of the workers. Productivity has risen from approximately five cars per worker per year in 1975 to 51 in 2001. This indicates that exploitation has increased by a factor of almost 9. Today's Rover workers are producing the value of their wages in approximately 1/9th of the time it took workers in 1975. This leads to an increase in s/v and so an increase in the rate of profit.

However, as can be seen from the table, the number of workers has dropped from 210 000 to 5 500, a decrease by a factor of almost 40. This has, of course, resulted in an enormous decrease in variable capital, or wages, v. In the expression above, the organic composition, or c/v, will have risen. This, in turn, will decrease the rate of profit.

In general the productivity of labour can only be increased to any significant degree by increasing the value of the machinery, or constant capital, which each worker uses. The present computer welding machines and intelligent assembly lines which have allowed these massive increases in worker productivity are massively more valuable than the equipment used in the post-war period. This is true despite the use of microprocessors and cheaper materials and methods of production. For example, the entire assembly line for the Metro in 1980 cost £ 275 m whereas BMW spent £ 2000 m on the new lines for Rover, and in 2000 before they sold the plant they said another £ 3000 m investment was required. The figures in Table 1, although they do not, of course, correspond to the value categories used by Marx, do give an indication of the increased amount of fixed capital which was invested in Rover in the three decades before its collapse. During the period of 1975 to 1994 an average of £ 180 m appears to have been invested annually, whereas in the period 1994 to 2005 the figure was £ 330 m. These figures illustrate what has occurred in value terms, namely that the constant capital has increased relentlessly in comparison to the variable capital. This has led to an increase in the organic composition c/v and so a relentless fall in the rate of profit.

It can be seen that attempts to increase the rate of profit through increased exploitation, although they would appear superficially to make things better for the capitalist class, produce results which make the situation worse. Only if the capital which makes these increases in productivity is able to gain a competitive advantage over its rivals, an advantage which permits it to sell its products above their value, will these changes bring relief. MG Rover completely failed to do this. Each time they improved productivity that of their competitors had improved by greater amounts. For example, the peak of Rover's productivity was in 2001 when it was producing 51 cars per worker per year. At that time the Toyota factory in Burnaston and the Ford factory at Saarlouis (Germany) were each producing 87 and the Nissan factory in Sunderland was producing 95. The Mitsubishi Mitsushita plant in Japan was meanwhile producing 178 cars per worker per year! ⁽⁵⁾

Devaluing capital

An alternative means of restoring profitability is by devaluing constant capital c. This causes the organic composition c/v to decrease and directly increases the rate of profit. This has been attempted spectacularly at Rover. Throughout the history of capitalism capital has been devalued by the bankruptcy of weaker capitals and through the process of capital concentration in which weaker capitals are “written off” and cease to function as capital. After Rovers' nationalisation in 1975, the new owner, the National Enterprise Board, embarked on a programme of rationalisation in which plants were closed and production concentrated. The extent of this programme can be gauged by the fact that the workforce was halved during the period of nationalisation. Although this process produced a devaluation of capital and on its own would have raised the rate of profit, it was more than compensated for by the £ 3.4 bn investment during this period. As we have seen above, this investment was to increase the rate of exploitation of labour.

The net effect was an increase in the constant capital, c, and an increase in the organic composition leading to a reduction in the rate of profit. The first direct devaluation of capital occurred during the privatisation of 1988. The plant was sold to British Aerospace for a mere £ 150 m. The price was so low that the EU investigated the sale and concluded the plant was worth £ 800 m. In fact £ 2.6 bn of debt to the state was written off in this sale. In money terms the plant was sold for £ 3.25 bn below its value. These figures indicate a massive devaluation of constant capital had occurred, a reduction by a factor of approximately 20. As a consequence the rate of profit was increased and a period of relative economic success followed. Although British Aerospace made negligible investment during their 6 years of ownership, they still managed to sell Rover to BMW for £ 800 m.

Under BMW the measures adopted by the National Enterprise Board were again applied, though this time by private capital rather than state capital. A massive process of rationalisation and capital concentration was implemented. This time the work force was reduced by a factor of 4 in 6 years. At the same time a huge campaign of investment to re-equip the factories and increase productivity was launched. This shows how both “nationalised capital” and “private capital” have precisely the same aims, namely to increase the rate of profit.

As in the period of the National Enterprise Board control these measures were insufficient because the competition had moved further ahead. In 2000 BMW abandoned the struggle and the Rover section was sold to Phoenix for £ 10. In actual fact the company was given away with a massive dowry. Phoenix was given a £ 427 m interest free loan and when this was added to the value of unsold cars and cash accounts in the various branches the total dowry amounted to £ 1.14 bn. This freed Rover of all bank debt and was again equivalent of devaluing the constant capital. This produced an increase in profit rates and it is little wonder that Phoenix were ecstatic about the deal.

For a few years it appeared as if stability was being regained but this was short lived. BMW had estimated that that for longer term success a further £ 3 bn investment was needed, but the reduced size of the workforce and the average productivity meant that Rover could not generate this. Rover was unable to develop new models and, as the BMW models aged and the dowry was spent, sales dropped. In a period of five years Rover was bankrupt once more.

Direct attacks on workers

The failure of Rover to restore profitability either by increasing relative surplus value or through periodic devaluation of constant capital shows that these measures are losing their effectiveness for manufacturing capital in the core countries. Rover's profitability remained below the global average for the vehicle industry. The average for the global industry is itself falling and this is the reason for the periodic crises such as that now hitting GM and Ford. This is not to say that these measures are not still being applied. They are. However, as their effectiveness decreases they are being combined with a more direct attack, that of increasing absolute surplus value, i. e., extending working hours, and a direct attack on wages and benefits.

Within the last few years German and French capitalists, for example, have attempted to return to the 40 hour week without any increase in pay. This was achieved at Siemens. A direct lowering of pay is also being carried out through cuts in welfare benefits, making workers pay for things which were previously provided by the state, and reducing pensions ⁽⁶⁾. GM and Ford are also blaming their difficulties on the pensions and healthcare benefits they have to pay to their workers and their retired workers and threatening to cut these benefits. Such attacks are more direct than increasing relative surplus value and run the risk of provoking class struggle. The fact that the bosses now feel the need to implement such measures is an indication of the seriousness of the crisis they face.

The difficulties capitalism faces are, of course, also reflected by the export of capital to countries where the value of labour power is lower. Workers in India and China, for example, can be paid between 1/5 and 1/20 of what European or US workers receive. The rates of exploitation and therefore the rate of profit can be enormously increased by locating plants in these countries. A relentless shift of manufacturing industry to the countries of capitalism's periphery, where the value of labour power is lower, is taking place. All the major car producers now have plants in the low-wage economies of Asia, or South America or the countries of Eastern Europe. It is significant that Rover looked to a Chinese car manufacturer to bail it out. Whereas other vehicle manufacturers tried to relocate plants in the peripheral countries to take advantage of cheaper labour power, the Rover deal would have seen Chinese capital relocating in Britain to produce for the European market. Whether this could ever have been successful is not clear. It is however clear that such a development is only a possibility because SAIC is sufficiently profitable to generate the capital required for new model development while Rover is not.

Although the deal with SAIC collapsed, it represents a straw in the wind. For over a century and a half the flow of industrial capital has been from the core countries, where capitalism first developed, to the peripheral countries. This deal would have represented a significant reversal of this trend.

On the one hand, the developments at Rover illustrate the increasing internationalisation of capital and production which have significantly undermined the notion of national capital for all but the most powerful states. On the other hand, these events point to the more general loss of industrial capacity in the core countries, the so-called “hollowing out” of their economies, which makes imports of industrial commodities essential and opens the door to the import of industrial capital.

Changing structure of the metropolitan economies

The collapse of Rover highlights the changing structure of the economies of the core capitalist countries. The scale of the changes since the post-war period can be appreciated from a comparison of the numbers employed today with the numbers in the '50's. In 2005 the bankruptcy of the last major British car manufacturer will product at the most about 25 000 job losses. In 1952, BMC directly employed 450 000 workers and a further 100 000 workers in component factories. Even in 1975 when Rover was nationalised, it was estimated that the collapse of the company would lead to 1 million job losses.

These figures show the decline in numbers of workers in the vehicle industry, but they also illustrate a more general decline in manufacturing which is reflected in the structure of the working class. The decline in manufacturing jobs is shown in Table 2.

The figures in Table 2 show the numbers of industrial workers have halved in the last two and a half decades. Manufacturing now accounts for only 20% of the economy. This has resulted in a trade deficit which now stands at 5% of the GDP. At the same time as manufacturing employment has declined, employment in services has increased. The government now boasts that approximately 67% of the GDP is generated by services. This issue is dealt with in more depth in the article “Capitalism's new economy - the case of the UK” in this edition. Here we wish simply to restate that this sector is largely parasitic. Although such things as financing, banking, stock broking, insurance, etc., are essential for capitalism, they do not produce value no matter how much the bourgeoisie pretends they do. They simply distribute surplus value produced elsewhere in the economy and are therefore a net drain on surplus value. They therefore reduce the global rate of profit. Of course, what these types of services do achieve is to drain surplus value from the areas where workers are actually producing it, to the service sectors themselves. The service sectors mobilise the capital accumulated worldwide, and ensure that this attracts the average rate of global profit. The income from this capital returns to the core countries where most of the capital originates, and the service industries ensure they are handsomely paid for their services.

This sector is servicing the global economy and the growth of this sector points to the increasingly global nature of capitalism and the large masses of capital required to compete. It is therefore no surprise that the British state was unable to play any significant role in preventing the collapse of Rover even though it came on the eve of a general election. As mentioned above, Rover needed investment in the order of £ 3 bn and the British state was not even prepared to commit itself to a £ 100 m bridging loan. This is an indication of the inability of the national state to provide the capital now required for profitability in the globalised economy. Despite this, many on capitalism's left wing used the Rover crisis to again call for its nationalisation ⁽⁷⁾ which they see as a type of socialisation.

Nationalisation is not socialisation

It is a measure of the utter bankruptcy of the capitalist left that they can still respond to the Rover crisis by calling for nationalisation. As we have shown above, Rover was nationalised from 1975 to 1988 and the national state applied exactly the same measures which BMW applied from 1994 to 2000. It is simply an illusion to imagine that the form in which capital is owned can make any difference to its essential function. The fundamental relationship within capitalism is that of wage labour to capital. The owners of capital, no matter whether they call themselves the National Enterprise Board or BMW must ensure that wage labour generates sufficient profit to expand existing capital values and to enable capital to accumulate. In the Russian economy, which was quite incorrectly called communist, all capital was owned by the state yet wage labour and the essential categories of capitalism remained intact as did the need for profits and accumulation. What the left still wants to achieve is centralised state capitalism, which they still pretend is socialism. ⁽⁸⁾

Only by abolishing wage labour and capital can common ownership be achieved. Only this can create a system of production which serves the needs of mankind and not the needs of capital.

(1) The four managers who bought Rover for £ 10 in 2000 are reported to have enriched themselves to the tune £ 40 million in the five years which they ran Rover. This is not, however, the cause of Rover's bankruptcy.

(2) We note in passing that the market for cars has steadily increased over the last century. More cars were produced in 2002 than ever before. The problem is not the market. The notion that pre-capitalist markets are somehow required for restoring the profitability of the car industry, as argued by the epigones of Rosa Luxemburg in the ICC, cannot be taken seriously.

(3) See Capital Volume III, Chapter 15.

(4) Marx's rates are calculated in terms of value, or man hours worked by average labour. The rates which the bourgeoisie quote are not the same as those used by Marx but they do indicate what is happening.

(5) Figures from World Market research centre - European Automotive production 2002.

(6) See text in Revolutionary Perspectives 29 “Pensions and social benefits under attack”.

(7) See, for example, the Stalinist Weekly Worker 14th April 2005.

(8) For further discussion of this point see article “British Elections - Victory for Capitalism” in this issue.

(9) Figures relate to workers per plant.

(10) Sale investigated by EU who concluded price should have been £ 800 million.

(11) Sale price was £ 10. BMW provided £ 427 m interest free loan + manufactured cars and cash.