This is the first part in a set of blog posts about Luxemburg’s analysis of cartels in Chapter 2 of Reform or Revolution. You can see the other parts here: Part 0, Part 1, Part 2, Part 3, Part 4, Part 5.

A while ago, I wrote a small blog post where I appreciated Chapter 2 of Rosa Luxemburg’s Reform or Revolution. There, she largely discusses monopolies and credit systems as adaptations which capitalists have made to allow for increased accumulation and expansion of capital—attempts to forestall a total breakdown of the capitalist economic system.

Rosa Luxemburg’s Analysis of the Eventual Downfall of Conglomerates / Cartels / Monopolies

I thought Luxemburg’s analysis of credit was highly revealing, and that the analysis has held up. However, I was warier about her analysis of cartels/conglomerates/monopolies—she predicted that they would eventually break apart, and that those in charge of individual sections of conglomerates would prefer those things to risk the market as separate entities than to stay within the conglomerate:

“Cartels are fundamentally nothing else than a means resorted to by the capitalist mode of production for the purpose of holding back the fatal fall of the rate of profit in certain branches of production. What method do cartels employ for this end? That of keeping inactive a part of the accumulated capital. That is, they use the same method which in another form is employed in crises. The remedy and the illness resemble each other like two drops of water. Indeed the first can be considered the lesser evil only up to a certain point. When the outlets of disposal begin to shrink, and the world market has been extended to its limit and has become exhausted through the competition of the capitalist countries—and sooner or later that is bound to come—the forced partial idleness of capital will reach such dimensions that the remedy will become transformed into a malady, and capital, already pretty much ‘socialised’ through regulation, will tend to revert again to the form of individual capital. In the face of the increased difficulties of finding markets, each individual portion of capital will prefer to take its chances alone. At that time, the large regulating organisations will burst like soap bubbles and give way to aggravated competition.”

—Rosa Luxemburg, 1908
‘Reform or Revolution?’
Chapter 2: The Adaptation of Capital
(emphasis my own)

To summarize her argument in perhaps clearer, more contemporary language: We are specifically looking at her prediction that cartels/conglomerates will break apart as their target markets reach their capacity and less growth is to be found in their sector. When this limit is reached, this means that there are no more places to expand the market into without a significant change in structure. “When the outlets of disposal begin to shrink,” then the basic qualities that define conglomerates becomes a hindrance to the profit interest.

Implicitly from how they are defined, monopolies and cartels essentially prevent competition in some way or another. If they prevent competition while still making profits, they are by-definition preventing capital investments into would-be competitors. That is, they seem to be forcing a “partial idleness of capital.”

(1) The main way that cartels force idleness of capital is by informally agreeing not to compete with one another. The capital which would have otherwise been invested into competitive innovation-seeking is held back and gets counted as profit.

(2) We might also see a forced partial idleness of capital in the way that modern tech monopolies acquire and copy competitors. To give a specific example, Facebook prevents an overlap in services and internal competition between itself and Instagram, a company which Facebook has bought. The competition between the two companies would have been costly, and required investments of capital from both sides—but Facebook avoided that costly competition by buying up and integrating Instagram.

(3) Large tech companies also develop new technologies, but don’t make these advancements available for use, another example of capital being held idle. It costs money to roll these advancements out at scale, so they don’t want to do that if they don’t have to. Only when an up-and-coming competitor threatens their business by providing those technological advancements might the monopolies deploy the feature/advancement, or ramp up production to defeat their challenger. This is functionally similar to copying a competitor’s features. However, this might even be thought of as more morally egregious because they are intentionally withholding existing features for profit, even when they know that adding those features would likely provide a better product.

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Profits are gained by suppression of competition, and by capture and saturation of the market.

Companies want to be the only place to buy to get a specific type of commodity. This is the suppression of competition.

They also want everyone who could possibly buy from the company to actually be buying from the company. This is the saturation of the market, or in Luxemburg’s terms, exhausting all outlets of disposal.

When no more profit is to be found by attempts to expand—when the well of new customers or available raw materials is running dry—then this idleness of capital becomes a hindrance.[ftnt1] Capital, by being held idle, is prevented from being reinvested into the individual companies within the cartel/monopoly/monopolized-sector.

But capitalists—if they are economically rational—should not hold back capital if the situation changes for the worse. If they are pressured to grow, and their previous monopolistic strategies for growth aren’t working, then, “[T]he remedy will become transformed into a malady...”

When the outlets of disposal have been exhausted, or there are limited raw resources—the limits of the market have been reached. For each individual company within the cartel/monopoly, it seems like the only way to increase their profits is to innovate and re-enter into competition in the sector once more. The internal competition within a monopoly/cartel was previously staved off by expanding to every possible consumer in the market, but once this expansion is no longer an option, the pressure for internal competition begins to grow.

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Let’s put this into a concrete example. It is plausible that Facebook, Instagram, WhatsApp—all within the Meta conglomerate—will reach a limit in which they cannot significantly expand any further in the global market. They each—insofar as they are distinct companies—will feel increasing pressure to distinguish and compete with each other. The only way for Instagram, as an individual company, to expand and increase its individual profits, will essentially be to break from the internal coordination of the cartel. Once it breaks from this cartel-like coordination, it can more easily try to compete and grab market share away from Facebook, WhatsApp, etc. I take Luxemburg to be referring to that kind of general phenomenon when she writes that, “In the face of the increased difficulties of finding markets, each individual portion of capital will prefer to take its chances alone.” However, she may also be referring to the individual investors who disinvest from monopolies for potentially more profitable ventures.

We might also consider all of the Silicon Valley giants to be in a cartel. That is, they are coordinating insofar as they stay in their own lanes and don’t seriously compete with each other on each’s main sources of profit. But as their growth begins to slow (because they’ve saturated the existing consumer market and have no new places to expand), we will see them begin to take on more ruthless competition with each other.

As I understand it, that is Luxemburg’s main argument against the idea that cartels/monopolies can be a permanent bandage on the crises of capitalism. And her idea has held up relatively well—the monopolies and combinations of the '70s have indeed seen their investors intentionally choose to break themselves up for the sake of profit, as Luxemburg predicted. General Electric and Johnson & Johnson, the surviving monopolistic dinosaurs of that era, announced in 2021 that they too are breaking up. The news of this arrived between my last post on Luxemburg and this one—it is what made me reexamine her analysis of monopolies to see what I had missed.

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In my previous post, I had initially pointed to Silicon Valley monopolies as proof that monopolies as a tendency in capitalism were here to stay. Reconsidering Luxemburg’s argument in light of the news about General Electric and Johnson & Johnson, I have new doubts about the tech monopolies. At the very least, even if Silicon Valley monopolies are here to stay, they will not be able to continue to exist in their current form, if only for the bottom-line problems pointed out by Luxemburg.

As they reach their limits for new customers, they will begin encroaching on each other’s differentiated market sectors. We have already seen this in a few ways. Look, for example, at Microsoft’s attempts to challenge Google’s search/advertisements (see Bing and advertisements within Windows); Google’s challenge to Apple’s iOS (see Android); and Apple’s challenges to Microsoft’s services (see their new focus on services as their main area for growth) and to Google’s services (see Google docs). It also seems like Meta and Apple are likely to enter into competition over Virtual Reality and Mixed Reality.

These may be an initial, cautious, toeing-of-the-line before a fight-to-the-death era of corporate competition. These companies will continue making exploratory steps that will undoubtedly escalate if growth cannot be found through their normal corners of the market. The informal agreement of tech conglomerates not to compete with each other will give way to the anarchy of capitalism. And this individualist anarchy is caused by the pressure to grow, as it runs up against the limits of the market’s outlets of disposal / capacity for realization of commodities on the market.

I also think there are some interesting observations with regards to how—although old monopolies break apart—new monopolies seem to arise and take their place in importance in the political economy. But first, let’s take a look at how contemporary bourgeois economists interpret the break-up of General Electric and Johnson & Johnson.

Continued in Part 2.

Footnotes:

[ftnt1]

“Raw materials” here is my own addition. Marxists (and Luxemburg herself) have previously considered the problem of eventually running out of raw materials, but I think it is not included here in Luxemburg’s brief analysis of monopolies. I think it should be, for the reasons that follow.

I think the idleness of capital is more fundamental to Luxemburg’s analysis because that is what is definitionally implied when we talk about monopolies—anything that comes in contradiction to this is important, and Luxemburg just so happens to point to the shrinking of outlets of disposal as the main contradicting tendency to that aspect of monopolies.

However, take the example of Facebook internally competing with Instagram. To prevent real antagonistic competition, they rely on expanding the user-base, thus expanding the amount of ad space they can sell to advertisers. In this case, running out of outlets of disposal would mean something like running out of companies/users who want to advertise or exchange money on their platforms. However, we also might imagine that there will always be more companies who want to advertise than there is available advertising space. If that were so, then the market for new customers looking to buy advertisement space never dries up. The “outlets of disposal” are still hungry for the product that Meta is selling: users’ attention.

Would this mean that Meta is safe as a monopoly? Not necessarily—Meta is already reaching its limits in expanding to larger user bases. There are only so many people in the world who want to use Facebook, Instagram, or WhatsApp; and only so much time in the day to give attention to these apps. It’s reached the point now where Facebook is looking to expand its market by trying to play nice with the Chinese government, or to help provide easy internet access to populations in Africa where internet connection is a limiting factor of their ability to use Facebook. It seems that Meta has run out of something like the ‘raw resources’ which they package up and sell to their customers—they are running out of sellable user attention. (I should note, there’s reason not to think of user attention as a raw material—advertisements are more similar to the profit model of shipping logistics than the profit model of the production of material commodities.)

They have run out of accessible ‘raw materials’ before their customer base of advertisers has dried up. But the result is the same as if they had run out of customers: insofar as individual companies within the cartel want to grow, they will need to compete with each other for ‘raw resources’. Competition breaks out once more—the agreement not to compete is no longer profitable for the individual companies to abide by.

For Meta, the writing may already be on the wall—the looming incapability to expand the user base thus factoring into the move to pivot the conglomerate to a ‘metaverse’, alternate reality, largely digital-goods profit model.