The UK and Capitalism's New Economy - Part Four:The Illusion of a Productive Economy

So far in this series we have been subjecting capitalist claims about the wealth generated by today’s service-dominated economy to a Marxist value analysis. It is now time to draw these threads together and see what they tell us about the current state of well-being of UK capital. First, then, a reminder of some of the significant points established so far.

The relative decline of manufacturing industry and employment is a well-known fact. According to official figures financial and business services now account for about one in five jobs in the UK, compared with about one in ten in 1981. A breakdown of the UK’s Gross Value Added (GVA) figures for 2002 shows business and financial services accounting for 30% compared to manufacturing’s 16%. (1) At first reading these sort of statistics are a challenge to the theory that labour is the source of all value, especially since service work as defined by Marx cannot produce new value. We have therefore not only had to clarify what Marx meant by service work (labour expended on a specific task that has use value for the person who is paying for it out of their income) but also what he meant by productive and unproductive labour in order to distinguish the meaning of all these terms from the way in which they are used by capitalist economists and statisticians.

The True Definition of Productive Labour

Essentially, productive labour for Marx is commodity-producing labour - i.e. labour which produces not just use value but also exchange value for capital. Whereas the service worker is paid in full for the labour used up in producing something of immediate use, the productive worker is employed by the capitalist to produce commodities, not for immediate use, but to be sold at a profit. That profit is derived from the unpaid labour time the worker is obliged to work over and above the time it takes to produce the amount of commodities to cover the cost of his/her wages. Whilst for capital ‘value added’ is essentially a monetary calculation with productive or unproductive sectors of the economy being defined in terms of profit or loss, a Marxist approach reveals that Labour which produces surplus value, ... over and above the equivalent which it receives as wages is the one and only source of new value.

By the same token, for Marx labour is unproductive when it is not part of commodity production whilst for capital ‘unproductive’ simply means ‘unprofitable’. Once upon a time the capitalist definition of ‘services’ was practically the same as ‘unprofitable’ (though also vaguely implying something useful) but the spectacular rise of ‘business and financial services’ in recent years means that the term really has no consistent meaning in capitalist economics. (What, for example, is the defining characteristic that links ‘financial’ and ‘social’ services?) We came up against The Office of National Statistics’ own confusion about what it means by ‘services’ when we examined its workforce profile for April 2005 and found that it classified 80% of all jobs under services. (2) For the ONS everything that doesn’t come under manufacturing, construction, energy or agriculture must be a service! This official categorisation not only blurs the role of new productive sectors, such as the media and software industries, it does not allow for any more than a rough estimate as to how many workers produce new value for capital even though their jobs are classified under ‘services’. In part two of this series our estimate was that about one quarter of the jobs - around 6 million - officially classified as ‘services’ involve the production of new value. We can assume, for example, that a substantial part of the labour force in the ‘distribution, hotel and restaurant sector’ as well as in ‘transport and communications’ produces surplus value. Equally, we can say that the workforce in capitalism’s highly acclaimed ‘business and financial services’ sector produces no new value, despite the amount of financial profit generated. In the previous issue we saw how the boom in the financial sector is in fact due to a massive generation of fictitious capital and it is here that the distinction between surplus value and financial profit is most glaring. Overall we were able to extrapolate that for every value producing worker in the UK there are almost five other people, either working or otherwise, who do not produce value. Ironically this close on 1:5 ratio is roughly the same ratio as it was in Britain in 1861 when, according to the 1861 Census there was a population of 28.7 million and, using the same rough and ready guesstimate, a productive workforce of around 6 million. (3)

Commenting on a report to the House of Commons for that same year which revealed that the total number of persons (managers included) employed in the factories properly so called of the United Kingdom was only 775,534, while the number of female servants in England alone amounted to 1 million, Marx wryly remarks:

What a convenient arrangement it is that makes a factory girl to sweat twelve hours in a factory, so that the factory proprietor, with a part of her unpaid labour, can take into his personal service her sister as maid, her brother as groom and her cousin as soldier or policeman! (4)

In this one sentence Marx graphically illustrates how the revenue to pay workers who are not involved in commodity production is drawn from the pool of surplus value annexed by capital from the unpaid labour of productive (i.e. commodity-producing) workers. This is only possible once the surplus value is realised for capital in the form of financial profit. Clearly, however much of that financial profit is used as revenue to finance non-productive expenditure (as opposed to being redeployed as capital for a further round of value production) then this represents surplus value which has been withdrawn from the accumulation process. The wage bill of a large section of the non-productive workforce thus represents a drain on the pool of surplus value that has already been realised from previous accumulation. As such, however, this has no bearing on the rate of profit. It is otherwise with the commercial sector.

Although workers occupied in the various aspects of buying and selling (what Marx called ‘merchant’s capital’) do not produce surplus value they are engaged in realising that value - of turning it into profit - for capital. Their wages, as well as the capital outlay and profits drawn by the wholesaler, retailer, accountant or whoever, represent surplus value hived off from the productive sphere and in this way enter into the formation of the average rate of profit.

Merchant’s capital, therefore, participates in levelling surplus value to average profit, although it does not take part in its production. Thus, the general rate of profit contains a deduction from surplus value due to merchant’s capital, hence a deduction from the profit of industrial capital. (5)

In fact the distinction between merchant’s capital and productive capital is not always so clear. For instance, the domination of the grocery trade by supermarket giants who control the production of many of the commodities they sell not only means that a larger portion of the overall surplus value involved in producing the goods accrues to Tesco or Asda, but the marginal reduction in overall capital outlay lessens the fall in the general rate of profit. The everyday reality of capitalism is always more complicated than the theory. Without theory, however, the underlying forces which shape that reality would remain a mystery.

Steady Progress or Spectacular Decline?

Turning once again to Marx’s observation on the high number of (unproductive) household servants in relation to factory (productive) workers in 1861. Marx not only makes it clear what he thinks about the increasing retinues of servants the capitalists are able to employ on the basis of the factory workers’ unpaid labour, he also explicitly states that this situation accompanies the growing productivity of capital (i.e. workers’ labour). In other words, the increased rate of surplus value (or unpaid labour) that accompanies the development of the productive forces brought by the continuous accumulation of capital allows not only for a higher level of population but for an increasing level of social wealth, albeit inordinately accruing to the capitalist class. Historically it is capitalism’s unprecedented development of the productive forces that has laid the material possibility for a world where - once the capitalist hold over the productive forces is broken - work alone will no longer dominate anyone’s life.

The champions of the new ‘service’ economy like to present the decline of manufacturing industry as the natural outcome of capitalism’s advance. (Of course, without the prospect of the capitalist era ever being drawn to a close.) - The more ‘mature’ an economy becomes the more it will achieve ‘economic growth’ by progressively moving out of manufacturing and primary industries and in so doing the more prosperous will be its citizenry. In this scenario the UK’s position as the fourth richest country in the world (by GDP) is credited to the rise of ‘services’, especially financial services. The reality is otherwise. In the first place, the history of the capitalist economy is not one of steady, progressive growth. The benign image of gradual improvement presented, for example, by the Office of National Statistics in a special end of century report entitled, A Century of Labour Market Change, is totally misleading. Under ‘key points’, the document says:

One major change was the shift in industrial composition. In the UK, manufacturing’s share fell from 28 to 14 per cent of employment, and agriculture’s share from 11 to 2 per cent. (6)

This simply ignores the cyclical nature of capitalist development: the impact of two world wars and the economic crisis between them with its mass unemployment in manufacturing and heavy industry complemented by a relative rise in service (or tertiary) employment. It also omits to mention that for decades after the 2nd World War manufacturing’s share of employment was far higher than its 28% share in 1900. In 1951 39% of employed workers were in manufacturing. A decade later this portion had reduced by 1%! In the next decade, between 1961-71 the decline accelerated ... by 2%! By 1971, therefore, the percentage of manufacturing workers in the workforce, at 29%, had more or less returned to what it had been in 1900! So much for the steady advance towards the squeaky clean ‘new economy’.

In reality, as workers who lived through the Seventies and Eighties are aware, and as we have written about over the years, the wholesale economic restructuring which has reduced manufacturing employment has been no steady transition. On the contrary, today’s ‘new economy’ is very much the product of the subduing of the working class after a series of head-on attacks and sector-by-sector defeats over the course of almost two decades a generation ago. The occasion for those attacks was the reappearance of capitalism’s cyclical crisis of accumulation, a crisis of worldwide dimensions in which UK capitalism led the way in its attacks on the working class and the discarding of the post-war quid pro quo with the trades unions. This article is not the place to go over the battles which ended with the loss of job security for hundreds of thousands of workers and unemployment for millions; the ruthless introduction of new technology which brought wage cuts and undermined the power of the old skilled workforce; the equally calculating attacks on steelworkers, shipyard workers and coal miners which hastened the wholesale dismantling of the state industrial sector as UK capital embraced the possibilities of globalisation. Suffice it to say that the accelerated decline in manufacturing employment - down 7% as a portion of a declining working population between 1971 and 1981 and then by a further 9% in the next decade (to 20% of the employed workforce) until today manufacturing employment, at about 3.5 million is around 12 per cent of the population in work - has not brought a return to pre-crisis growth rates, however they are measured.

If the UK is managing to maintain its position amongst the leading imperialist powers this is not because the move away from manufacturing has led to a remarkable advance in productivity. Even though we can say that over 6 million jobs in the officially-designated service sector involve the production of surplus value this still means that an astonishing 60% of all (officially recognised) jobs are unproductive. Furthermore, though we can only guess at the rate of surplus value, it is unbelievable that the value-output per worker in spheres like the ‘hospitality industry’ comes anywhere near matching the average rate of surplus value of the high-tech manufacturing worker, much less that this is what lies behind the economic growth that is claimed for the new economy. (Even by capitalism’s own criteria the UK is slipping behind in the productivity stakes). (7) Rather it is the UK’s pre-existing position as an imperialist power, including its over-valued currency and its historical role in the world of international finance and trade, that allow it to live under the illusion (along with the rest of the advanced capitalist world) that the generation of financial profit is in itself a sign of economic growth.

As it is, the main engines of economic growth in the UK in recent years have been increased spending on consumer goods on the back of a phenomenal increase in personal debt fuelled by credit card spending and a speculative boom in house prices. At 140 per cent, the ratio of UK household debt to disposable income is now even higher than in the US, (8) whilst the Office of National Statistics’ evaluation that the UK was worth £5.3 trillion at the end of 2003 reveals that housing represents over £3 trillion of these assets! (9)

The Significance of this Enquiry

Of course in the real world the analytical distinctions we have been making, between surplus value and financial profit, between productive and unproductive labour, do not alter the situation of workers. Whether you are male or female, working in a hospital, call centre, supermarket, oil rig or factory, the common thread which unites you in relation to capital is the necessity to work for a wage, not whether or not your labour produces surplus value for the bosses.

The point of examining the relationship of productive to unproductive labour is by no means to suggest that one set of workers is more class conscious than another. (And maybe it’s worth emphasising again that when it comes to surplus value ‘productive’ is not synonymous with ‘manual’ nor ‘unproductive’ with ‘sitting in front of a desk’. These sort of myths were propagated by Stalinism and are encouraged by capitalist ideologues to further the belief that socialism is a dead issue.)

The purpose of this enquiry was to challenge the idea that capitalism as it exists today is healthier than ever and this means challenging the basis of its increased growth claims. We have had to clarify how capital’s extortion of unpaid labour from the workforce is the real source of wealth and in so doing have found that, far from overcoming its accumulation crisis, not only has the ratio of the value producing workforce to the unproductive workforce decreased dramatically but that the proportion of ‘national wealth’ accounted for by financial assets which do not represent any new value is unprecedented. The situation of UK capitalism is not unique. It is indicative of the wider malaise of a global system which has an unprecedented supply of financial funds for speculation but fewer and fewer ‘opportunities to invest’. As the Financial Times worries about the news that ‘business investment sank to a new low as a share of national income last year’ financial workers in the City gloat at the prospect of rising bonuses with the lucrative surge in mergers and acquisitions. (10) The new economy is certainly wealth-generating for some. In the light of capitalism’s history, however, it has all the makings of a prelude to a spectacular crash.

We have not done with the new economy yet. In the next issue will look at what is going on from the standpoint of the working class.


(1) See and

(2) See Part Two of this series, ‘The Value of Capitalist Services’ in Revolutionary Perspectives 36.

(3) This figure was reached simply by going through the numbers employed in the various occupations as listed in the 1861 Census. Available online at

(4) Theories of Surplus Value Vol. 1 p.201, Lawrence and Wishart ed.

(5) Capital Vol. 3 p.286, Lawrence and Wishart ed.

(6) Compiled by Craig Lindsay for the Labour Market Division of the ONS in March 2003. Available online from the ONS website.

(7) According to the Financial Times, 24.2.06, the latest ONS figures for the level of output per worker, which relate to 2004, show the UK as “below the average of all other countries in the Group of Seven leading economies...”.

(8) Financial Times 30.4.05.

(9) ESRC website op.cit.

(10) Financial Times, ‘Fears For Economy as Business Investment Falls’, 24.2.06 and also ‘Mergers and Equities Boost City Jobs Market’, 21.2.06.

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