Capitalism's New Economy: The Case of the UK

The article here, the first in a series on what was then dubbed the "new economy", originally appeared in the CWO's political journal, Revolutionary Perspectives, in 2005.

Submitted by Internationali… on July 10, 2019

After thirty years or so of economic crisis, a crisis that still haunts capitalism today and which more than ever threatens the future of humanity, the US and its advanced capitalist allies had managed to offload much of their manufacturing and heavy industrial production to places where the cost of labour power was much cheaper and with little working class resistance to the installation of 'labour saving' machinery and technology. This process was made easier by the collapse of the rival imperialist bloc in the shape of the USSR, which not only averted the real danger of all-out world war as capitalism's 'natural' solution to the crisis, but accelerated the process of globalisation and intertwining of every national capitalist economy which is now beginning to unwind. Back in the early 1990's, however, capital — principally US and European capital — really did think it had found the elixir of crisis-free life in a 'post-industrial' world where the working class was no longer a force and history itself was a thing of the past. It was in this climate, in the lead-up to the 2007/8 financial crash when to call oneself a Marxist, never mind of the 'revolutionary' kind, spelt political isolation, that this series on capitalism's so-called new economy was written. Above all, it is a reaffirmation of the continuing relevance of the Marxian law of value and the key role of capital's exploitation of labour power in this world dominated by financial capital and a class of wage workers increasingly engaged in 'services'.

Part One: The Decline of Manufacturing and the Rise of Services

The muted response from all quarters to the collapse of Rover underscores the widespread acceptance of manufacturing's declining role in the UK economy. Working class indifference is symptomatic of the low level of resistance to attack by the present generation of wage workers. For the capitalist class it is a sign of their confidence that a predominantly service-based economy can deliver them higher profits and economic growth. Not so long ago the collapse of Britain's "last domestically owned volume car manufacturer" would have been greeted with cries of despair about the declining competitiveness of the UK economy. Nowadays, however, that unfailing mouthpiece of capital, the Financial Times nonchalantly points out:

"In fact, economists argue that it is a waste of resources to tie up productive capital and skills in companies that cannot compete. Much better, they say, to allow the workers to move into jobs that create higher added value for the country. Helen Simpson, the director of productivity research at the Institute for Fiscal Studies, says about Rover's likely demise: 'Since the company is failing, the assets are not being used in their most productive way and they could potentially be put to better use elsewhere in the economy.' Her argument is echoed at the Yale School of Management by Peter Schott, an expert in US manufacturing. 'It is best for a country to employ its workers in the highest productivity endeavours', he says, adding that it is a myth that manufacturing jobs are in some way better for an economy than those in services." ['Industrial Jobs Are Not Always Beneficial', 13th April 2005]

What is interesting here is not that economists are endorsing the wind-up of Rover — we've heard enough about competitiveness and the 'law of the market' to expect nothing else — but that according to the new economic orthodoxy, 'services' are not only a productive part of the economy, they (or at least some of them) are reckoned to be more productive (to create 'higher added value') than manufacturing industry. Certainly — apart from the 'human cost' so close to a general election — the government is not particularly worried about the continuing decline of manufacturing industry to the tune of an estimated 600 jobs a day. On the contrary, an official government web site [albeit for a US audience] boasts that in the UK, which is "the world's fourth largest economy and [which] has weathered the recent economic downturn better than any other G8 country. ... The service sector accounts for about two-thirds of GDP...".1 Unsurprisingly, therefore, official UK statistics on the structure of the workforce show that of a total of just over 30 million jobs in December last year, more than 24 million are classified as some kind of service compared to manufacturing which accounts for 3.5 million jobs.2

Although the relative decline of manufacturing is particularly marked in the UK this is a universal trend throughout the advanced capitalist world. The same FT article mentioned above informs us,

"The decline in manufacturing is not just a British or US phenomenon. Even in Japan and Germany, traditionally seen as powerhouses of industrially driven growth, manufacturing is a much less significant generator of employment than before. Between 1980 and 2002 the share of employment provided by manufacturing fell from 25 per cent to 19 per cent in Japan and from 34 per cent to 24 per cent in Germany."

It is a trend which is accelerating with the globalisation of production, essentially the transfer of manufacturing production and heavy industries such as shipbuilding to areas of cheap labour — a process which, along with the easing of restrictions on the movement of global financial capital, is part of the response of advanced capital to its crisis of the declining rate of profit. To the extent that the relative decline of manufacturing and primary industries in the richest capitalist economies is offset by their expansion in areas of the globe with cheaper labour costs and lower capital overheads then capitalism can hardly be said to have de-industrialised. To the extent that manufacturing industry in these areas combines the latest technology with cheaper labour power — this means even higher productivity (in capitalist terms, output per capita input per worker) and higher profits. In so far as this is achieved through direct foreign investment by the richer capitals then the decline of manufacturing at home is simply the consequence of the exploitation of cheaper labour power and the milking of a higher rate of profit abroad.

But this doesn't explain the increasing proportion of the labour force employed in 'services' at home.

Marx on Services, Productive and Unproductive Labour

In the popular imagination — which instinctively equates the working class with those who do productive work and the latter with the manual labour involved in producing material goods — the steady decline of manufacturing and heavy industry reinforces capitalist propaganda, notably from not-so-New Labour, that the working class is a spent political force. For some leading social theorists the working class has ceased to exist altogether. Yet, we are told, a leaner, fitter, knowledge-based capitalism survives healthier than ever. We will leave the academic experts themselves to work on the conundrum of how capitalism exists without a working class. In the meantime it will suffice to remind ourselves that Marx defined the working class, not according to whether someone did manual or brain work, in factory, office or shop, but according to their relationship to the means of production. While the capitalists lives from profit, the working class are those people who depend on income from wage labour. Marx's opposition to this situation wasn't simply that it is morally unjust or inequitable but was based on the precise analysis of the source of the capitalists' profit. He identified this as ultimately stemming from the unpaid labour represented by the value of the commodities workers have produced over and above the value of their wages.

Likewise, Marx had a consistent concept of what he meant by 'services' which, as we shall see, was quite different from the various muddled categorisations of bourgeois statisticians, economists and the like. For Marx the idea of a separate sector of service jobs which created additional value for capital would be absurd. In the first place he saw that a service is just that — i.e. it is the provision of something useful [a use value] to the purchaser who pays for it out of his own revenue, whether that is derived from wages or profit. The key point here is that the purchaser is paying for the labour power expended by the 'service provider' [to use modem parlance] and nothing more. In Theories of Surplus Value Marx gives examples of different kinds of service labour: the "jobbing tailor who comes to the capitalist's house and patches his trousers for him producing a mere use value for him"; the cook whose labour "I buy. . . purely for the sake of its use value" — these kind of personal services are part of the cost of consumption of commodities. "The labour of the doctor" and the "teacher teaching a skill with which I can earn money" are examples of a different kind of service — services which are part of the costs of production of labour power. In all these cases the labour expended, although very useful, is unproductive labour for capitalism. This is not a question of how hard or otherwise the' service provider' works, or whether or not their work results in a material product:

"... the jobbing tailor, [who works for me at my home) is not a productive labourer, although his labour provides me with the product, the trousers, and him with the price of his labour, the money."3

On the other hand, the same tailor, performing the same task of trouser making, but now employed by a capitalist textile merchant and working for a wage is a productive labourer. How can this be? If it is not the kind of work which determines whether labour is productive or unproductive, what is it?

The answer lies in the changed relationship of the worker [in this case the tailor] to capital. In the first case, once I have paid for the use value [the trousers] created by the tailor's labour then the money is gone and I have no way of capitalising from this. As Marx ironically explains, in the case of the tailor employed by the textile capitalist,

"... the service which [he] renders to this capitalist does not consist at all in the fact that he converts cloth into trousers, but that the necessary labour-time materialised in a pair of trousers is say twelve hours, while the wage that [he] gets is equivalent to six hours. The service which he renders the capitalist is therefore that he works six hours for nothing. That this takes place in the form of making trousers only conceals the real relationship."4

In the first example, the tailor's work has simply produced a use value (in the shape of the pair of trousers) with which the purchaser can wear or use how they like. In the second example, the trousers the tailor has made for their employer take the form of a commodity — that is, they have both a use value and an exchange value. Expressed as money, the exchange value of the trousers is the price they would cost in the shop or marketplace. So, as soon as he can, the textile capitalist "therefore tries to transform the trousers again into money" in order to capitalise on the difference between the money he has paid out for the wages of the tailor (equivalent to six hours' work) and the money he receives for the trousers (equivalent to 12 hours' labour).

Once the tailor is employed in producing a commodity, then his labour becomes productive for capital in that he has created something for the capitalist that embodies more value than he receives back in wages. Unlike the service worker, the person who produces commodities is a productive worker for capitalism because their labour is:

"Labour which produces surplus value, a new value over and above the equivalent which it receives as wages."5

By the same token, the commodity which is the manifestation of productive labour may or may not be a material object and may, or may not, be the product of mental or manual work. Actors employed by a theatre company, for example, will most likely perform a play for which the box office returns are more than the value of the wages they receive. Or again, as Marx puts it:

"A writer is a productive labourer not in so far as he produces ideas, but in so far as he enriches the publisher. ... The use value of the commodity in which the labour of a productive worker is embodied may be of the most futile kind. ... It is a definition of labour which is derived not from its content or result, but from its particular social form."6

Whilst the so-called Classical school of political economists like Adam Smith recognised that labour had a role to play in the creation of economic wealth, it was Marx who developed this labour theory of value. He demonstrated that the accumulation of capital derives solely from the hidden, unpaid labour of commodity producing workers: from the value over and above the cost of their labour power which is taken away from them as soon as they enter into the wage labour relation. Marx's clarification of the exploitative essence of capitalism was unacceptable to those who benefited from it. The capitalist response to Marx's economic analysis was to ditch the Classical school and the labour theory of value altogether.7 However, it is one thing to deny a theory, the underlying reality of capitalism — which it is our contention only the labour theory of value can explain — cannot be altered without getting rid of capitalism itself.

But let's not digress. Before we can finally investigate the capitalists' current claim that investment in services adds higher value to their economy, there are a couple of further reminders of what Marx's analysis entails.

First of all, we need to be aware that although in the Marxian analysis, service work is unproductive [of surplus value], unproductive labour is not confined to the service sector. With only a few exceptions Marx could categorically place the whole of commercial [or 'merchant'] capital — capital involved in the process of buying and selling — in the bracket of unproductive capital since "neither the time of purchase nor of sale creates any value."8 The wages of workers in this sector belong to the costs of circulation, i.e. they are drain on overall surplus value, even though the work is necessary for the functioning of capital and even though the individual worker "works as well as the next man",

"... his labour creates neither value nor product. He belongs himself to the faux frais of production. His usefulness does not consist in transforming an unproductive function into a productive one, nor unproductive into productive labour. ... His usefulness consists rather in the fact that a smaller part of society s labour power and labour time is tied up in this unproductive function."9

In view of what we are about to discuss, it's worth mentioning the transport sector. Put simply, Marx distinguished between transport as a service and therefore unproductive (people) and transport in relation to commodities. In so far as the change of location increases the exchange value of the commodity, i.e. when the labour of the transport workers has imparted value, then transportation is productive for capital.

Finally, it's worth stating what may be blindingly obvious: What is unproductive labour for capitalism in value terms is not necessarily unprofitable in financial terms. Financial profit is not the same thing as the production of surplus value. Yet even though most of the time the capitalists fool themselves into believing that increasing financial profits necessarily means 'economic growth' [not least in their GDP statistics], even though they deny that labour is the basis of real economic growth, they are still obliged to recognise — albeit in a distorted way — that the vast increases in nominal wealth are due to the increased productivity of labour.

In the next part of this article we will be investigating what the capitalists mean by 'services' and 'increased productivity'.


  • From a section entitled 'UK Economic Overview'. The site is "produced and maintained by British Information Services, a New York based Section of the British Embassy in Washington DC."
  • 2'UK Workforce Jobs by Industry', published by the Office for National Statistics, December 2004. Although these are quite recent figures the number for manufacturing jobs is already out of date. By February this year that number was reduced to 3.2 million, again according to government statistics. Interestingly, the survey compilers explain that the 30.5 million total is "a measure of jobs rather than people". In other words, since the total number of people in work is around 28 million (28.302 million, according to the same source in April 2004), a significant minority of the workforce have two or more jobs.
  • 3Theories of Surplus Value (TSV) Vol.1 p.402, Lawrence and Wishart.
  • 4op. cit. p.403
  • 5op.cit. p.202
  • 6op. cit. p.158
  • 7The present day attempt to revive Adam Smith is more symbolic than real. Smith's association with laissez faire has made him the guru of those who imagine that the 'free competition' from which monopoly capitalism developed can be re-established today. They are not so interested in reviving the labour theory of value which accompanied Smith's analysis.
  • 8See Chapter 16, on ‘Commercial Capital’ in Capital Vol.III.
  • 9From Chapter 6, 'The Costs of Circulation' in Capital Vol. II, pp134-5 in Lawrence and Wishart edition.



4 years 10 months ago

In reply to by

Submitted by adri on July 10, 2019

Nice stuff. Question though, Marx writes

A singer who sings like a bird is an unproductive worker. If she sells her singing for money, she is to that extent a wage labourer or a commodity dealer. But the same singer, when engaged by an entrepreneur who has her sing in order to make money, is a productive worker, for she directly produces capital. A schoolmaster who educates others is not a productive worker. But a schoolmaster who is engaged as a wage labourer in an institution along with others, in order through his labour to valorise the money of the entrepreneur of the knowledge-mongering institution, is a productive worker. Yet most of these kinds of work, from the formal point of view, are hardly subsumed formally under capital. They belong rather among the transitional forms.

On the whole, the kinds of work which are only enjoyed as services, and yet are capable of being exploited directly in the capitalist way, even though they cannot be converted into products separable from the workers themselves and therefore existing outside them as independent commodities, only constitute infinitesimal magnitudes in comparison with the mass of products under capitalist production. They should therefore be left out of account entirely, and treated only under wage labour, under the category of wage labour which is not at the same time productive labour.

So even though Marx used an example of a singer being a productive worker (a worker who produces surplus value/a worker who is exploited) , we shouldn't consider the singer or any other service worker productive, because service work "only constitute infinitesimal magnitudes in comparison with the mass of products under capitalist production"?


4 years 10 months ago

In reply to by

Submitted by Dyjbas on July 11, 2019

Part two of the series is relevant here (you can now find it on, it will be uploaded to libcom soon). It depends what you mean by service worker. Unlike Marx's definition, the common capitalist definition, according to which for example 80% of the UK workforce is currently employed in services, comprises both unproductive and productive labour.