The article below was written in 2006, so some of the stats are a bit dated.  However the fundamental argument remains.  For instance, NZ productivity growth continues to be poor and NZ capitalists remain behind most of the OECD in investment in new plant, machinery, technology and R&D.  In addition, NZ workers continue to work longer hours than most workers in the OECD, while a chunk of the working class has had to contend with zero-hours contracts and/or unemployment.

tpp-08-001by Philip Ferguson

At present two of the most interesting statistics about the workplace in New Zealand are that proportionately NZ is at the top end of the OECD when it comes to the length of time workers spend working each week and the bottom end of the OECD in terms of investment by employers in plant, machinery and equipment (PME) and research and development (R&D). This is not accidental. Over the past 20 years, capitalists operating in this country – both domestic and foreign – have tried to increase profits by making workers work harder and longer, rather than by improving workers’ productivity through investing in more efficient machinery and technology.

The NZ Herald, for instance, has noted that most of the increase in labour productivity in recent years has come from labour itself rather than from capital investment making workers more efficient (see Brian Fallows and Liam Dann, “Working data offer a ray of hope in the gloom”, NZ Herald, March 29, 2006).

This tallies with the NZ Ministry of Economic Development finding that PME (plant, machinery and equipment) investment in NZ has been nearly 25 percent lower than the average in OECD countries in recent years. Total investment, excluding residential investment, as a proportion of GDP has also been nearly a fifth lower in NZ than the OECD average. (See

In a capitalist society productivity gains generally lead to negative consequences for workers. Even during the long economic boom from the late 1940s until the early 1970s this was the case. In those days, productivity gains tended in the West to come more from high levels of investment in plant and equipment that made each worker more productive, so this was less brutal than the current productivity gains. However, the productivity increases of the postwar boom still often led to redundancies as relatively fewer workers were needed to maintain and expand output levels. Moreover, the greater amount of capital invested in machines relative to that invested in labour-power (the one commodity that creates new value and thus surplus-value) had the long-term effect of driving down the rate of profit. In turn, this led to the end of the boom and the onset of long-term stagnation, with the capitalists forced to return to more brutal methods of exploitation – for instance, mass unemployment to drive down wages, laws to break workers’ ability to organise, longer and harder working time, cuts in social spending on health and education.

Why have bosses in recent years chosen the more brutal way of increasing productivity and profits? Are they just assholes?

To understand why, at one point in time they might choose the first method and, at another point in time, use the second, it is necessary to understand how the capitalist economy works and how this determines what policies are followed at any particular time. This also helps us understand why productivity levels are the result of investment decisions made by the bosses and have little to do with workers. Thus workers should take no responsibility for them and the bosses should not be able to use them as the basis for refusing pay demands.

Whatever the character of individual bosses, the overall reality is that capitalism is a system based on maximising private profit. Under capitalism, goods and services are mainly produced in the form of commodities – a commodity being anything that is produced to be sold on the market for a profit.

In the economic recovery after the Great Depression and WW2, profit rates were originally high. Large-scale investment went into expanding the workforce in the developed capitalist countries – through incorporating more and more women and immigrant workers, for instance – and in research and development, leading to technological improvements in machinery which made workers even more productive. The additional surplus-value produced through these improvements is called relative surplus-value and this relative surplus-value was the main form of expansion which took place for the several decades of the economic boom following World War 2. So far, so good. Or so you would think.

However, this very period of growth created a problem for capitalism. What went wrong?

The process of increasing productivity through the purchase and utilisation of more sophisticated machines and technology means that the variable capital, expended on human labour-power (the source of surplus-value), falls in relation to constant capital (that spent on the buildings, equipment and raw materials). Each commodity now contains less labour-power and therefore less value. Even if total profit has increased through the number of commodities produced going up substantially, the rate of profit falls because it is measured over the total capital outlay in which the constant capital, which produces no new value, has increased in proportion to the variable capital which produces surplus-value.

Falling profit rates in the productive sphere – which is the sphere which allows everything else in the world to go round – mean that capitalists have to invest greater and greater amounts just to maintain the same amount of profit. For instance, $100 million invested in production at a ten percent rate of profit yields a $10 million profit. But as the rate of profit falls to, say, five percent, then $200 million would have to be thrown into the next round of the production process.

Eventually capital reaches the point at which, regardless of the size of the mass of profit – which can be enormous – it is insufficient for the scale of investment needed in new and more productive machines, labour-power and raw materials to keep the production process going. Things grind to a halt. In the early 1970s, the older industrial capitalist countries reached crisis point, as their industrial plant became increasingly in need of replacement. The crisis hit Britain first, as it was the first modern industrial society and its plant was the most outdated. It hit countries like Japan and Germany later, as their industries had been rebuilt after WW2.

In New Zealand, the beginning of the end of the postwar boom could be seen with the government’s nil wage order in 1968, but did not reach crisis point until 1973-4. The crisis in NZ was made worse by the loss of some guaranteed British markets, the country’s dependency on imported oil and the lack of mineral resources.

To restore higher profit rates, capitalists cut costs. They do this by laying off workers, driving down labour costs and increasing the rate of exploitation. For instance, they will try to drive down wages to a level below the cost of labour-power, so that there is an increase in surplus-value – the extra value produced by the worker and pocketed by the capitalists. And they will often speed up the rate of work, forcing fewer workers to churn out more commodities.

Additionally, the crisis causes many individual capitalists, and often whole sectors, to go bust because they cannot compete with other capitalists. When they go bust, all their workers end up unemployed.

It is not just workers in the private sector who experience much harder times in a crisis. Public services are financed out of total surplus value, thereby lessening the amount which can be converted into profit. This isn’t a big issue in boom times, but when falling profit rates eventually bring about a crisis, capitalists argue for cuts to many forms of state spending – especially in areas like health and education.

They also try to convert as much of the public sector as possible into profit-making ventures, either by privatising them (as with rail, Air NZ, Telecom etc nationally and buses and other council services at the local level) or by imposing user-pays charges and cutting costs (health and education).

Since the bosses still need to compete with each other and improve profitability, they still have to try to raise productivity. Unable and unprepared to invest massively in research and development since the end of the postwar boom, they resort to the second method of lifting productivity – increasing work hours and the speed of production lines. The kind of surplus-value produced by lengthening working time is called absolute surplus-value. It means greater physical and mental wear and tear on workers, as well as disrupting people’s personal and family lives with split shifts and other anti-social work hours. Meanwhile the capitalists remain free to jetset around the world, enjoy their multi-million dollar homes on Paretai Drive and similar elite streets, take time off whenever they want to play golf and so on.

Then the bosses – the people who choose to invest or not invest in new plant, technology and machinery and therefore determine productivity – have the nerve to turn around and moan about increases in productivity being low, as if it’s workers’ fault!

What lessons can be drawn from all this?

Firstly, capitalism is not about producing goods and services because people want and need them; it is about producing profits. Production of goods and services is simply a means to that end. When the rate of profit falls, workers are made to bear the brunt through lower wages and worse conditions. One section of the workforce suffers from longer working hours, while another section is made unemployed. Speed-up further dehumanises production lines and exhausts workers. Falling rates of profit in the private sector also mean less funds for the state sector, so workers in the state sector get it in the neck too.

The very fact that workers have become more productive, with the development of better and better machinery and technology, should make life easier. We should now be able to produce more and better goods in less time and therefore have a fantastic standard of living from, say, a 30-hour week, or even less. But because of the specifically capitalist nature of the production process as a process for producing profits above all, these very improvements create economic crises and worsen the condition of workers.

In the short term, we need to argue that since levels of productivity depend on levels of capitalist investment, workers should not take any responsibility for them. Our demands for wage rises should not be dependent on whether capitalists choose to invest in new plant and machinery and research and development or spend those funds on buying shares, investment properties and palatial homes. At the very least, the unions should be fighting for real cost-of-living increases which catch up on twenty years of decline in workers’ incomes.

Moreover, all deals on productivity involve greater increases in productivity than in wages. So, in practice, they are deals by which we create even more profit for the employer and get a smaller share of the total wealth ourselves. And, under capitalism, productivity increases lead to lay-offs and/or longer and harder working hours.

Contrast this with a socialist society. In a socialist society, increases in productivity would have only positive effects. It would take less time to produce a huge mass of value, so workers could have more free time and we could still enjoy greater access to the goods we produce and an expansion of public health and education.

Labour-power – workers’ capacity to work
Variable capital (v) – the portion of capitalists’ funds spent on workers’ labour-power (in money terms, wages)
Constant capital (c) – the portion of capitalists’ funds spent on plant, machinery, technology, raw materials, etc
Surplus-value (s) – the amount of value that the workers produce over and above the value of their own labour-power
Rate of exploitation/rate of surplus-value – s/v
Rate of profit – the surplus-value divided by the total of funds the capitalist has to spend on constant and variable capital: s/(c+v)
Law of the tendency of the rate of profit to fall – “the single most important law of modern political economy” (Marx); as capitalists are forced to compete with each other, they are forced to invest more in c relative to v; this causes the rate of profit to fall as only v is the source of new, expanded value

Follow-up reading on New Zealand
Coming apart down under: the decay of New Zealand capitalist society from the 1970s to 1993 
The state of the working class in New Zealand, 1997 
The Key-English government in the context of capital accumulation in NZ today 
Low pay, longer hours and less social mobility: welcome to NZ capitalism in the 21st century 

For Marxist analysis of capitalism, exploitation. . .
What is exploitation?
How capitalism works – and why it doesn’t
4,000 words on Capital
Karl Korsch on “tremendous and enduring” impact of Marx’s Capital (1932)
Marx’s critique of classical political economy
Capital, the working class and Marx’s critique of political economy
From the vaults: two articles on wages, profits, crisis
How capitalism under-develops the world
The political economy of low-wage labour 

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