State Action to Absorb Surplus: Creation of New Industries

Download: MOLOCH: Mass-Production Industry as a Statist Construct.

I. The Origins of Sloanist Mass Production

A Fork in the Road
A Wrong Turn
The Role of the State in Tipping the Balance

II. The Institutional Imperatives of Sloanism

Economies of Scale, Economies of Speed, and Push Distribution
Microeconomic Institutional Forms for Providing Stability
Mass Consumption to Absorb Surplus
Political Capitalism
State Action to Absorb Surplus: Imperialism
State Action to Absorb Surplus: Creation of New Industries

III. Conclusion

Government also directly intervened to alleviate the problem of overproduction, by its increasing practice of directly purchasing the corporate economy’s surplus output — through Keynesian fiscal policy, massive highway and civil aviation programs, the military-industrial complex, the prison-industrial complex, foreign aid, and so forth. Baran and Sweezy point to the government’s rising share of GDP as “an approximate index of the extent to which government’s role as a creator of effective demand and absorber of surplus has grown during the monopoly capitalist era.” [129]

If the depressive effects of growing monopoly had operated unchecked, the United States economy would have entered a period of stagnation long before the end of the nineteenth century, and it is unlikely that capitalism could have survived into the second half of the twentieth century. What, then, were the powerful external stimuli which offset these depressive effects and enabled the economy to grow fairly rapidly during the later decades of the nineteenth century and, with significant interruptions, during the first two thirds of the twentieth century? In our judgment, they are of two kinds which we classify as (1) epoch-making innovations, and (2) wars and their aftermaths.

By “epoch-making innovations,” Baran and Sweezy referred to “those innovations which shake up the entire pattern of the economy and hence create vast investment outlets in addition to the capital which they directly absorb.” [130] As for wars, Emmanuel Goldstein described their function quite well: “Even when weapons of war are not actually destroyed, their manufacture is still a convenient way of expending labor power without producing anything that can be consumed.” War is a way of “shattering to pieces, or pouring into the stratosphere, or sinking in the depths of the sea,” the output of excess productive facilities. [131]

The highway-automobile complex and the civil aviation system are textbook examples of the phenomenon Paul Baran and Paul Sweezy described in Monopoly Capitalism: government’s creation of entire new industries to soak up the surplus generated by corporate capitalism’s chronic tendencies toward overinvestment and overproduction.

Of the automobile-highway complex, Baran and Sweezy wrote, “[t]his complex of private interests clustering around one product has no equal elsewhere in the economy — or in the world. And the whole complex, of course, is completely dependent on the public provision of roads and highways.” [132] Not to mention the role of U.S. foreign policy in guaranteeing access to “cheap and abundant” petroleum.

One of the major barriers to the fledgling automobile industry at the turn of the century was the poor state of the roads. One of the first highway lobbying groups was the League of American Wheelmen, which founded “good roads” associations around the country and, in 1891, began lobbying state legislatures….

The Federal Aid Roads Act of 1916 encouraged coast-to-coast construction of paved roads, usually financed by gasoline taxes (a symbiotic relationship if ever there was one). By 1930, the annual budget for federal road projects was $750 million. After 1939, with a push from President Franklin Roosevelt, limited-access interstates began to make rural areas accessible. [133]

It was this last, in the 1930s, that signified the most revolutionary change. From its beginning, the movement for a national superhighway network was identified, first of all, with the fascist industrial policy of Hitler, and second with the American automotive industry.

The “most powerful pressure group in Washington” began in June, 1932, when GM President, Alfred P. Sloan, created the National Highway Users Conference, inviting oil and rubber firms to help GM bankroll a propaganda and lobbying effort that continues to this day. [134]

One of the earliest depictions of the modern superhighway in America was the Futurama exhibit at the 1939 World’s Fair in New York, sponsored by (who else?) GM.

The exhibit… provided a nation emerging from its darkest decade since the Civil War a mesmerizing glimpse of the future–a future that involved lots and lots of roads. Big roads. Fourteen-lane superhighways on which cars would travel at 100 mph. Roads on which, a recorded narrator promised, Americans would eventually be able to cross the nation in a day. [135]

The Interstate’s association with General Motors didn’t end there, of course. Its actual construction took place under the supervision of DOD Secretary Charles Wilson, formerly the company’s CEO. During his 1953 confirmation hearings, when asked whether “he could make a decision in the country’s interest that was contrary to GM’s interest,”

Wilson shot back with his famous comment, “I cannot conceive of one because for years I thought what was good for our country was good for General Motors, and vice versa. The difference did not exist. Our company is too big.” [136]

Wilson’s role in the Interstate program was hardly that of a mere disinterested technocrat. From the time of his appointment to DOD, he “pushed relentlessly” for it. And the chief administrator of the program was “Francis DuPont, whose family owned the largest share of GM stock….” [137]

Corporate propaganda, as so often in the twentieth century, played an active role in attempts to reshape the popular culture.

Helping to keep the driving spirit alive, Dow Chemical, producer of asphalt, entered the PR campaign with a film featuring a staged testimonial from a grade school teacher standing up to her anti-highway neighbors with quiet indignation. “Can’t you see this highway means a whole new way of life for the children?” [138]

Whatever the political motivation behind it, the economic effect of the Interstate system should hardly be controversial. Virtually 100% of the roadbed damage to highways is caused by heavy trucks. And despite repeated liberalization of maximum weight restrictions, far beyond the heaviest conceivable weight the Interstate roadbeds were originally designed to support,

fuel taxes fail miserably at capturing from big-rig operators the cost of exponential pavement damage caused by higher axle loads. Only weight-distance user charges are efficient, but truckers have been successful at scrapping them in all but a few western states where the push for repeal continues. [139]

As for the civil aviation system, from the beginning it was a creature of the state. The whole physical infrastructure was built, in its early decades, with tax money.

Since 1946, the federal government has poured billions of dollars into airport development. In 1992, Prof. Stephen Paul Dempsey of the University of Denver estimated that the current replacement value of the U.S. commercial airport system — virtually all of it developed with federal grants and tax-free municipal bonds — at $1 trillion.

Not until 1971 did the federal government begin collecting user fees from airline passengers and freight shippers to recoup this investment. In 1988 the Congressional Budget Office found that in spite of user fees paid into the Airport and Airways Trust Fund, the taxpayers still had to transfer $3 billion in subsidies per year to the FAA to maintain its network of more than 400 control towers, 22 air traffic control centers, 1,000 radar-navigation aids, 250 long-range and terminal radar systems and its staff of 55,000 traffic controllers, technicians and bureaucrats. [140]

(And even aside from the inadequacy of user fees, eminent domain remains central to the building of new airports and expansion of existing airports.)

Subsidies to the airport and air traffic control infrastructure of the civil aviation system are only part of the picture. Equally important was the direct role of the state in creating the heavy aircraft industry, whose heavy cargo and passenger jets revolutionized civil aviation after WWII. The civil aviation system is, many times over, a creature of the state.

In Harry Truman and the War Scare of 1948, Frank Kofsky described the aircraft industry as spiraling into red ink after the end of the war, and on the verge of bankruptcy when it was rescued by Truman’s new bout of Cold War spending on heavy bombers. [141] David Noble pointed out that civilian jumbo jets would never have existed without the government’s heavy bomber contracts. The production runs for the civilian market alone were too small to pay for the complex and expensive machinery. The 747 is essentially a spinoff of military production. [142]

The permanent war economy associated with the Cold War prevented the U.S. from relapsing into depression after demobilization. The Cold War restored the corporate economy’s heavy reliance on the state as a source of guaranteed sales. Charles Nathanson argued that “one conclusion is inescapable: major firms with huge aggregations of corporate capital owe their survival after World War II to the Cold War….” [143] According to David F. Noble, employment in the aircraft industry grew more than tenfold between 1939 and 1954. Whereas military aircraft amounted to only a third of industry output in 1939. By 1953, military airframe weight production was 93% of total output. [144] “The advances in aerodynamics, metallurgy, electronics, and aircraft engine design which made supersonic flight a reality by October 1947 were underwritten almost entirely by the military.” [145]

As Marx pointed out in Volume Three of Capital, the rise of major new forms of industry could absorb surplus capital and counteract the falling direct rate of profit.” Baran and Sweezy, likewise, considered “epoch-making inventions” as partial counterbalances to the ever-increasing surplus. Their chief example was the rise of the automobile industry in the 1920s, which (along with the highway program) was to define the American economy for most of the mid-20th century. [146] The high tech boom of the 1990s was a similarly revolutionary event. It is revealing to consider the extent to which both the automobile and computer industries, far more than most industries, were direct products of state capitalism.

Besides civilian jumbo jets, many other entirely new industries were also created almost entirely as a byproduct of military spending. Through the military-industrial complex, the state has socialized a major share — probably the majority — of the cost of “private” business’s research and development. If anything the role of the state as purchaser of surplus economic output is eclipsed by its role as subsidizer of research cost, as Charles Nathanson pointed out. Research and development was heavily militarized by the Cold War “military-R&D complex.” Military R&D often results in basic, general use technologies with broad civilian applications. Technologies originally developed for the Pentagon have often become the basis for entire categories of consumer goods. [147] The general effect has been to “substantially [eliminate] the major risk area of capitalism: the development of and experimentation with new processes of production and new products.” [148]

This is the case in electronics especially, where many products originally developed by military R&D “have become the new commercial growth areas of the economy.” [149]

Overall, Nathanson estimated, industry depended on military funding for around 60% of its research and development spending; but this figure is considerably understated by the fact that a significant part of nominally civilian R&D spending is aimed at developing civilian applications for military technology. [150] It is also understated by the fact that military R&D is often used for developing production technologies that become the basis for production methods throughout the civilian sector.

In particular, as described by Noble in Forces of Production, industrial automation, cybernetics and miniaturized electronics all emerged directly from the military-funded R&D of WWII and the early Cold War. The aircraft, electronics and machine tools industries were transformed beyond recognition by the military economy. [151]

“The modern electronics industry,” Noble writes, “was largely a military creation.” Before the war, the industry consisted largely of radio. [152] Miniaturized electronics and cybernetics were almost entirely the result of military R&D.

Miniaturization of electrical circuits, the precursor of modern microelectronics, was promoted by the military for proximity fuses for bombs…. Perhaps the most significant innovation was the electronic digital computer, created primarily for ballistics calculations but used as well for atomic bomb analysis. After the war, the electronics industry continued to grow, stimulated primarily by military demands for aircraft and missile guidance systems, communications and control instruments, industrial control devices, high-speed electronic computers for air defense command and control networks…, and transistors for all of these devices…. In 1964, two-thirds of the research and development costs in the electrical equipment industry (e.g., those of GE, Westinghouse, RCA, Raytheon, AT&T, Philco, IBM, Sperry Rand_ were still paid for by the government. [153]

The transistor, “the outgrowth of wartime work on semi-conductors,” came out of Bell Labs in 1947. Despite obstacles like high cost and reliability, and resistance resulting from path dependency in the tube-based electronic industry, the transistor won out

through the large-scale and sustained sponsorship of the military, which needed the device for aircraft and missile control, guidance, and communications systems, and for the digital command- and-control computers that formed the core of their defense networks. [154]

In cybernetics, likewise, the electronic digital computer was developed largely in response to military needs. ENIAC, developed for the Army at the University’s Moore School of Electrical Engineering, was used for ballistics calculations and for calculations in the atomic bomb project. [155] Despite the reduced cost and increased reliability of hardware, and advances in computer language software systems, “in the 1950s the main users remained government agencies and, in particular, the military. The Air Force SAGE air defense system alone, for example, employed the bulk of the country’s programmers…”

SAGE produced, among other things, “a digital computer that was fast enough to function as part of a continuous feedback control system of enormous complexity,” which could therefore “be used continuously to monitor and control a vast array of automatic equipment in ‘real time’….” These capabilities were key to later advances industrial automation. [156]

The same pattern prevailed in the machine tool industry, the primary focus of Forces of Production. The share of total machine tools in use that were under ten years old rose from 28% in 1940 to 62% in 1945. At the end of the war, three hundred thousand machine tools were declared surplus and dumped on the commercial market at fire-sale prices. Although this caused the industry to contract (and consolidate), the Cold War resulted in a revival of the machine tools industry. R&D expenditures in machine tools expanded eightfold from 1951 to 1957, thanks to military needs. In the process, the machine tool industry became dominated by the “cost plus” culture of military industry, with its guaranteed profit. [157]

The specific technologies used in automated control systems for machine tools all came out of the military economy:

…[T]he effort to develop radar-directed gunfire control systems, centered at MIT’s Servomechanisms Laboratory, resulted in a range of remote control devices for position measurement and precision control of motion; the drive to develop proximity fuses for mortar shells produced miniaturized transceivers, early integrated circuits, and reliable, rugged, and standardized components. Finally, by the end of the war, experimentation at the National Bureau of Standards, as well as in Germany, had produced magnetic tape, recording heads (tape readers), and tape recorders for sound movies and radio, as well as information storage and programmable machine control. [158]

In particular, World War II R&D for radar-directed gunfire control systems was the primary impetus behind the development of servomechanisms and automatic control,

pulse generators, to convey precisely electrical information; transducers, for converting information about distance, heat, speed, and the like into electrical signals; and a whole range of associated actuating, control and sensing devices. [159]

Industrial automation was introduced in private industry as an offshoot of the military economy. The first analog computer-controlled industrial operations were in the electrical power and petroleum refining industries in the 1950s. By 1959, Texaco’s Port Arthur refinery placed production under full digital computer control, and was followed in 1960 by Monsanto’s Louisiana ammonia plant and B. F. Goodrich’s vinyl plant in Calvert, Kentucky. From there the revolution quickly spread to steel rolling mills, blast furnaces, and chemical processing plants. By the 1960s, computerized control evolved from open-loop to closed-loop feedback systems, with computers making adjustments automatically based on sensor feedback. [160]

Numerically controlled machine tools, in particular, were first developed with Air Force money, and first introduced (both with Air Force funding and under Air Force pressure) in the aircraft and the aircraft engines and parts industries, and in USAF contractors in the machine tool industry. [161]

So the military economy and other state-created industries were an enormous sponge for surplus capital and surplus output. The heavy industrial and high tech sectors were given a virtually guaranteed outlet, not only by U.S. military procurement, but by grants and loan guarantees for foreign military sales under the Military Assistance Program.

Although apologists for the military-industrial complex have tried to stress the relatively small fraction of total production represented by military goods, it makes more sense to compare the volume of military procurement to the amount of idle capacity. Military production runs amounting to a minor percentage of total production might absorb a major part of total idle production capacity, and have a huge effect on reducing unit costs. Besides, the rate of profit on military contracts tends to be quite a bit higher, given the fact that military goods have no “standard” market price, and the fact that prices are set by political means (as periodic Pentagon budget scandals should tell us).162 So military contracts, small though they might be as a portion of a firm’s total output, might well make the difference between profit and loss.

Seymour Melman described the “permanent war economy” as a privately-owned, centrally-planned economy that included most heavy manufacturing and high tech industry. This “state-controlled economy” was based on the principles of “maximization of costs and of government subsidies.” [163]

It can draw on the federal budget for virtually unlimited capital. It operates in an insulated, monopoly market that makes the state-capitalist firms, singly and jointly, impervious to inflation, to poor productivity performance, to poor product design and poor production managing. The subsidy pattern has made the state-capitalist firms failure-proof. That is the state-capitalist replacement for the classic self-correcting mechanisms of the competitive, cost-minimizing, profit-maximizing firm. [164]

A great deal of what is called “progress” amounts, not to an increase in the volume of consumption per unit of labor, but to an increase in the inputs consumed per unit of consumption — namely, the increased cost and technical sophistication entailed in a given unit of output, with no real increase in efficiency.

The chief virtue of the military economy is its utter unproductivity. That is, it does not compete with private industry to supply any good for which there is consumer demand. But military production is not the only such area of unproductive government spending. Neo-Marxist Paul Mattick elaborated
on the theme in a 1956 article. The overbuilt corporate economy, he wrote, ran up against the problem that “[p]rivate capital formation… finds its limitation in diminishing market-demand.” The State had to absorb part of the surplus output; but it had to do so without competing with corporations in the private market. Instead, “[g]overnment-induced production is channeled into non-market fields–the production of non-competitive public-works, armaments, superfluities and waste. [165]

In order to increase the scale of production and to accummulate [sic] capital, government creates “demand” by ordering the production of non-marketable goods, financed by government borrowings. This means that the government avails itself of productive resources belonging to private capital which would otherwise be idle. [166]

Such consumption of output, while not always directly profitable to private industry, serves a function analogous to foreign “dumping” below cost, in enabling industry to operate at full capacity despite the insufficiency of private demand to absorb the entire product at the cost of production.

It’s interesting to consider how many segments of the economy have a guaranteed market for their output, or a “conscript clientele” in place of willing consumers. The “military-industrial complex” is well known. But how about the state’s education and penal systems? How about the automobile-trucking-highway complex, or the civil aviation complex? Foreign surplus disposal (“export dependant monopoly capitalism”) and domestic surplus disposal (government purchases) are different forms of the same phenomenon.


129. Baran and Sweezy, pp. 146-147.

130. Ibid., p. 219.

131. George Orwell, 1984. Signet Classics Reprint (New York: Harcourt Brace Jovanovich, 1949, 1981), p. 157.

132. Ibid., pp. 173-174.

133. Jim Motavalli, “Getting Out of Gridlock: Thanks to the Highway Lobby, Now We’re Stuck in Traffic. How Do We Escape?” E Magazine, March/April 2002 <>.

134. Mike Ferner, “Taken for a Ride on the Interstate Highway System,” MRZine (Monthly Review) June 28, 2006

135. Justin Fox, “The Great Paving How the Interstate Highway System helped create the modern economy–and reshaped the FORTUNE 500.” Reprinted from Fortune. CNNMoney.Com, January 26, 2004 <>.

136. Edwin Black, “Hitler’s Carmaker: How Will Posterity Remember General Motors’ Conduct? (Part 4)” History News Network, May 14, 2007 <>.

137. Ferner, “Taken for a Ride.”

138. Ibid.

139. Frank N. Wilner, “Give truckers an inch, they’ll take a ton-mile: every liberalization has been a launching pad for further increases – trucking wants long combination vehicle restrictions dropped,” Railway Age, May 1997 <>.

140. James Coston, Amtrak Reform Council, 2001, in “America’s long history of subsidizing transportation” <>.

141. Frank Kofsky, Harry Truman and the War Scare of 1948 (New York: St. Martin’s Press, 1993).

142. Noble, America by Design, pp. 6-7.

143. Nathanson, “The Militarization of the American Economy,” in David Horowitz, ed., Corporations and the Cold War (New York and London: Monthly Review Press, 1969), p. 214.

144. David F. Noble, Forces of Production: A Social History of American Automation (New York: Alfred A. Knopf, 1984), pp. 5-6.

145. Ibid., p. 6.

146. Baran and Sweezy, p. 220.

147. Nathanson, “The Militarization of the American Economy,” p. 208.

148. Ibid., p. 230.

149. Ibid., p. 230.

150. Ibid., pp. 222-25.

151. Noble, Forces of Production, p. 5.

152. Ibid., p. 7.

153. Ibid., pp. 7-8.

154. Ibid., pp. 47-48.

155. Ibid., p. 50.

156. Ibid., p. 52.

157. Ibid., pp. 8-9.

158. Ibid., p. 47.

159. Ibid., pp. 48-49.

160. Ibid., pp. 60-61.

161. Ibid., p. 213.

162. Nathanson, “The Militarization of the American Economy,” p. 208.

163. Seymour Melman, The Permanent War Economy: American Capitalism in Decline (New York: Simon and Schuster, 1974), p. 11.

164. Ibid., p. 21.

165. Paul Mattick, “The Economics of War and Peace,” Dissent (Fall 1956), p. 377.

166. Ibid., pp. 378-379.

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