The capitalist class and its economic experts talk as if the rate of growth in GDP is the indicator of the economic health of the country. However, life experience shows that growth in GDP does not guarantee improvement in the standard of living of the workers, peasants, artisans and others who toil to produce the GDP.
Crores of workers become poorer whenever the movement in their wages lag behind the rate of increase in the prices of consumption articles. It makes no difference to them whether GDP has grown by 5% or by 10%.
The number of peasants who have been driven to suicide by economic distress is estimated to be over 100,000 over the past 10 years. This is in spite of GDP growth in this decade being touted as one of the highest in the world.
The clamour about GDP growth is a smokescreen to hide the fact that in the capitalist system, the fruits of labour enrich the capitalists and not the labouring classes. It is aimed at hiding the truth that capitalistic growth inevitably leads to the accumulation of wealth at one pole and intensification of exploitation, poverty and misery at the other pole. It is essential for workers, peasants and all those concerned with the fate of society to penetrate the smokescreen created by the capitalist propaganda about GDP growth.
GDP is a flawed measure of Value Added
Gross Domestic Product (GDP) is the sum of the values of all goods and services produced within the territory of a particular country, less the value of goods and services used up in the process of production. It is also known as Gross Value Added
Measurement of GDP follows guidelines prescribed by the UN System of National Accounts. A serious flaw in this system is that it treats public administration and defence as if they are productive activities which add value to material wealth and national well-being. While they are necessary social functions, enforcing the law and defending the borders do not produce added value. This flaw leads to an exaggerated estimation of value added.
Far from contributing to value addition, public administration and defence actually constitute a deduction from the material wealth produced. By treating it as activities that add value, GDP significantly exaggerates the amount of value addition. The extent of exaggeration or over-estimation is highest in the case of those economies which are highly militarised.
This flaw serves to hide the increasingly parasitic nature of the capitalist system, where more and more material resources are getting consumed in producing means of destruction, rather than in producing the means of production and means of consumption.
An alternative measure of Value Added was developed in the socialist Soviet Union, which was called Net Material Product. It excluded economic activities that do not generate any value, such as public administration, defence, trade and financial intermediation.
GDP, which stands for Gross Domestic Product, is a flawed measure of the value added by human labour each year (See Box 1).
It is the toil of workers, peasants, artisans and other petty producers which produce added value every year. However, those who own the means of production as their private property pocket a large and rising share of the added value in the form of profit, interest and rent.
The means of large-scale production are owned by the capitalists. The labour is performed by the workers who own only their own labour power. This unequal distribution in ownership leads to an unequal distribution of the value added. The owners of capital suppress labour income to the minimum possible level so as to maximise their profits.
The capitalists earn their incomes not only by exploiting the labour of the workers they hire but also through unequal trade with the peasants and other small owner-producers. The latter are forced to sell their products below their value to the big capitalist corporations and monopolistic traders.
What matters most to working class families is not the growth of Value Added or GDP, but the rate of growth in the number of jobs and in the average real wage per worker. Capitalist growth does not guarantee either security of employment or steady growth in real wages. On the contrary, it gives rise to a reserve army of labour, a pool of unemployed persons who can be drawn into work and thrown out according to the ups and downs in market demand. That capitalist production expands wealth at one pole and poverty at the other pole was proved in theory by Karl Marx in the 19th century (See Box 2).
General Law of Capitalist Accumulation
“The law of capitalistic accumulation metamorphosed by economists into pretended law of Nature, in reality merely states that the very nature of accumulation excludes every diminution in the degree of exploitation of labour, and every rise in the price of labour, which could imperil the continual reproduction, on an ever-enlarging scale, of the capitalistic relation. It cannot be otherwise in a mode of production in which the labourer exists to satisfy the needs of self-expansion of existing values, instead of, on the contrary, material wealth existing to satisfy the needs of development on the part of the labourer. As in religion, man is governed by the products of his own brain, so in capitalistic production, he is governed by the products of his own hand.”
“Within the capitalist system all methods for raising the social productiveness of labour are brought about at the cost of the individual labourer; all means for the development of production transform themselves into means of domination over, and exploitation of, the producers; they mutilate the labourer into a fragment of a man, degrade him to the level of an appendage of a machine, destroy every remnant of charm in his work and turn it into a hated toil …”
“It establishes an accumulation of misery, corresponding with accumulation of capital. Accumulation of wealth at one pole is, therefore, at the same time accumulation of misery, agony of toil, slavery, ignorance, brutality, mental degradation, at the opposite pole, i.e., on the side of the class that produces its own product in the form of capital.”
Source: Karl Marx, Capital, Volume I, Chapter XXV, The General Law of Capitalist Accumulation
The greater the mass of productive labour set in motion, and the more intense its exploitation, the greater is the profit that the owners of capital can pocket. The capitalists are interested in increasing GDP growth because it is a means to their true goal, which is to maximise their rate of profit. The rate of profit of the capitalist determines the rate of accumulation of his capital.
To the capitalist class it does not matter what gets produced – whether it is food or clothing or it is guns and bombs, and whether it is for the domestic market or for some market abroad. All they care about is that it must fetch them maximum profits. When there is a general slump in production, they shift their capital into speculative activity to make maximum profits.
The working class, on the other hand, is most concerned that production must fulfil the needs of the working people and raise their standard of living. The fruits of labour must lead to prosperity for the labouring majority. Hence the progress of the country must be measured by the rate of growth in consumption of nutritious food, clothing and other goods and services by working families.
The capitalist class hides the relation between production and distribution. They say it is in everyone’s interest to maximise production, and then add, “of course, distribution is also important”. In this way they hide the fact that it is the relations of production which determine the distribution of income.
The unequal distribution of ownership of the means of production is responsible for the unequal distribution of income. Hence the solution lies in changing the relations of production. It lies in converting the means of production from being concentrated in the hands of a tiny minority into social property used for the benefit of all. Only then can the fruits of labour serve to ensure steady prosperity for the labouring masses.