2. Imperialism

After Engels’ death in the 1890’s, socialists continued to analyze the new stage of capitalism and in particular to take account of its growing international dimension. The theory reached its peak in Lenin’s work under the impact of the First World War, when the epoch of capitalist decay was finally understood as the epoch of imperialism. The revolutionary events of the period also compelled Marxists to elaborate new strategies: Lenin’s efforts to build a revolutionary vanguard party and international, and Trotsky’s theory of permanent revolution.


At the turn of the 20th century, socialists noted with interest the rise of international cartels that controlled production across national boundaries – supplementing the joint stock companies, trusts and statification that Marx and Engels had already observed. As well, from the late 1870’s on, the European powers completed the colonization of Asia and Africa; the capitalist market now embraced the world. At first sight all this could be regarded as simply the extension across national borders of the laws of capital accumulation and centralization – but now quantitative development had resulted in the qualitative changes that Marx and Engels had foreseen. This had to be incorporated into the theory, and a debate ensued whose issues are still controversial.

The first to take up the new situation was the “revisionist” current of open reformists within the German Social Democratic Party (the SPD); they argued that the development of capitalism itself would become socialism if pushed by the workers’ movement. The SPD was decisively influenced by the trade union bureaucracy, grown powerful through the rapid industrialization that had made Germany a world power. A period of prosperity starting around the turn of the century and a limited acceptance of the socialist opposition by the bourgeois state had created illusions in capitalist stability and social peace. The reformists hoped that the bourgeoisie, which had once tried to exclude the unions and socialist politicians from the democratic framework, would now welcome them.

“Democracy” was the price the European bourgeoisie had had to pay for the support of laborers and artisans in the bourgeois revolution against feudalism. But its original promise of rule by the masses had been transformed. Under capitalism it meant instead the mutual accommodation and rivalry of various spheres of capital, a working arrangement that maintained the system without constant internal warfare. It also allowed the incorporation of the masses’ demands in order to prevent further revolutions. In the German working class, the demand for democratic rights accelerated at the very time when their apparent opposite, bureaucracy, was growing inside the unions and the party. Indeed, the call for a purely democratic program came precisely from the bureaucrats; it was their counterweight to the Marxist tradition of revolution. It meant not mass control of the state or even of the workers’ organizations, but rather the latter’s “institutionalization” (participation) within the capitalist state apparatus.

Revisionism’s leading intellectual spokesman, Eduard Bernstein, gave this program a theoretical cover. He argued that the concentration and centralization of capital had enabled capitalism to overcome its tendency toward crises. Socialism could now be achieved progressively, not by revolution but through workers’ pressure for reforms and the formation of “cooperative associations,” which would “transform the state in the direction of democracy.” This was not only possible but also necessary, since capitalist centralization would lead to authoritarian power unless the workers’ movement added the democratic element. Bernstein said:

It is my firm conviction that the present generation will see the realization of a great deal of socialism, if not in the patented form then at least in substance. The steady enlargement of the circle of social duties and of the corresponding rights of the individual to society and vice versa; the extension of the right of supervision over the economy exercised by society organized either as nation or state, the development of democratic self-government in community, county and province; and the enlargement of the tasks of these bodies – all these signify for me growth into socialism, or, if you wish, piecemeal realization of socialism. The transfer of economic enterprises from private to public management will, of course, accompany this development, but it will proceed only gradually.(24)

Bernstein challenged the SPD, the strongest section of the Socialist International, to “appear as what it in fact now is, a democratic socialist party of reform.” This appraisal was correct in the sense that reformism was the dominant trend in German social democracy, despite the presence of a revolutionary left wing and the continued adoption of revolutionary platforms by the party as a whole. In Marxist terms, the SPD was centrist: its reformist practice belied its revolutionary proclamations. Socialism for the party had already become a goal for the future or merely a moral ideal. This ambivalence in its centrism came to an end and reformism proved to be dominant when the party fell in behind the German bourgeoisie in support of the war effort in 1914.

Theories of Imperialism

Rosa Luxemburg, a leading figure in the German and Polish parties, was the main left opponent of the German revisionist trend. She not only believed that the new stage of capitalism had placed socialism on the political agenda, but also insisted in response to Bernstein that the tendencies toward crisis and collapse were even more powerful than in capitalism’s previous epoch. She pointed out that democratic rights could easily be reversed once the class struggle heated up, that the reforms allowed by capital are only those compatible with the production of profits, and that one genuine trend (which Bernstein did not stress) was the rapid growth of militarism and repressive organs of the bourgeois states.(25)

In developing this argument Luxemburg produced a unique theory of imperialism. She held that capitalism could exist only within a non-capitalist environment (both non-capitalist countries and pre-capitalist production within capitalist countries); capitalism, however, was already swallowing up these elements through its own expansion. Her theory was based on an underconsumptionist analysis of capitalist accumulation: neither capitalists nor workers could consume the full surplus product arising from production, so buyers had to be found outside the system. Hence the capitalist powers had to seize colonies, and once the colonial markets had all been conquered, the same pressures would compel the powers to confront each other to extend their holdings; imperialist war for the redivision of colonies was inevitable.(26)

Luxemburg’s aim was to counter the social-democratic complacency that saw capitalism expanding without contradictions. Her theory linked the new stage of capitalism with foreign domination and colonialism; it thereby foreshadowed Lenin’s identification of imperialism with the new epoch of decay. But she erroneously identified the central contradiction as external to the system rather than within it. Her theory also led her to discount the possibility of genuine nationalist struggles against imperialist oppression in this epoch, on the grounds that any nationalist war would become subordinated to one or another of the great imperial powers.(27) While this was true of many of the conflicts embraced in World War I (when she wrote on the question), she overgeneralized it to the epoch as a whole.

Another step was made by the Austrian socialist economist Rudolf Hilferding, who introduced the concept of “finance capital” as the fusion of banking and industrial capital. With the suppression of competition, the finance capitalists came to dominate the state as well as the monopolies; they used it to set up protectionist barriers against foreign goods and to carve out ever wider economic territory. This encouraged international investment – the “export of capital” – for the purpose of expanding production and bringing more surplus-value under monopoly control. Hilferding cited Marx’s falling rate of profit as the force compelling the capitalists to invest in economically backward countries, where profits were higher due to low wages and material costs.(28)

Hilferding did not draw sufficiently sharp conclusions from his theory, wavering between reform and revolution. He saw the weak countries becoming battlefields for the great powers, but he also thought that inter-imperialist war could be deterred by the international interests of capital and the bourgeoisie’s fear of socialism. As well, he welcomed the growing socialization carried out by finance capital which “facilitates enormously the task of overcoming capitalism.” His disproportionality theory of crises allowed him to assert that monopolized capital would moderate the danger of crises. He implied that the working-class movement might not have to smash the bourgeois state but need only take it over and widen its role in organizing the economy.

The first Bolshevik work on imperialism was written by Bukharin during the world war, making use of much of Hilferding’s analysis. Bukharin stressed the growth of national capitalist blocs and of international rivalry between them; the increased power of the state reduced competition within a country but increased it internationally. He thus overcame Hilferding’s ambiguity over the prospect of imperialist war. But he exaggerated this tendency and came close to denying the possibility of capitalist competition and crises within a national economy:

When competition has finally reached its highest stage, when it has become competition between state capitalist trusts, then the use of state power, and the possibilities connected with it, begin to play a very large part. ... With the formation of state capitalist trusts, competition is being almost entirely shifted to foreign countries.(29)

Influenced by the German war economy, Bukharin thought that monopoly and statification – inevitable results of the centralization and concentration tendencies – would lead directly to state capitalism: a “rational” and planned capitalist economy that could do away with not only internal competition but also crises. Indeed, the growth of state intervention has increased markedly in the imperialist epoch. However, in the traditional imperialist countries, only in wartime and under fascism has state control of the economy reached the peaks which Bukharin saw as the norm. The monolithic state capital Bukharin imagined has never existed and could not survive for long if it ever came into being.

In contrast to Bukharin, Karl Kautsky, the so-called “pope” of orthodox Marxism, seized the other horn of Hilferding’s dilemma and pointed it in a revisionist direction. He claimed that capitalism could reach a new stage of international unification, “ultraimperialism,” signifying the end of harmful competition and war. (Amazingly, he reached this conclusion during the First World War, when the rival powers were tearing each other apart.) Kautsky regarded imperialism as a mere policy of the various capitalists generated by the industrialists’ desire for control over agrarian colonies, not as an innate drive of capitalism. Hence it could be transcended and pacified without socialist revolution.

Lenin’s “Imperialism”

The best known Marxist work on imperialism is Lenin’s pamphlet, Imperialism, the Highest Stage of Capitalism. It was written in 1916 as a “popular outline” and drew far-reaching political conclusions, but Czarist censorship prevented Lenin from making his revolutionary program explicit. Later the deification of Lenin by the Comintern turned his writings into sacred texts: observations whose context Lenin had carefully limited have been echoed unthinkingly for decades, while his real contributions are most often overlooked.

Lenin described five basic features of the new stage: monopoly, finance capital, the export of capital, international cartels and the territorial division of the world among the great powers. He also followed Hilferding in characterizing imperialism as a new reactionary epoch of capitalism in which the bourgeoisie aimed at world domination, not its early goal of freedom from feudal restraint. But he treated this insight dialectically: the transformation to the new epoch also reflected progressive changes. For Lenin, as for Engels, the monopolist and statist tendencies imminent in decaying capitalism are not class-neutral forms, adaptable equally well to bourgeoisie and proletariat. They are anti-capitalist even under bourgeois rule in that they reflect the future proletarian society; they thereby pose a threat to the bourgeoisie:

Competition becomes transformed into monopoly. The result is immense progress in the socialization of production. In particular, the process of technical invention and improvement becomes socialized. ... Capitalism in its imperialist stage leads right up to the most comprehensive socialization of production; it, so to speak, drags the capitalists, against their will and consciousness, into some sort of a new social order, a transitional one from complete free competition to complete socialization.(30)

Lenin too used “socialization” in the capitalist context to indicate that production becomes social while appropriation remains private. But the means of production are now ready for the proletariat to take over and harness, thereby freeing the productive forces from the restraints of bourgeois relations.

Capitalism only became capitalist imperialism at a definite and very high stage of its development, when certain of its fundamental characteristics began to change into their opposites, when the features of the epoch of transition from capitalism to a higher social and economic system had taken shape and revealed themselves in all spheres.(31)

The arrival of the epoch of monopoly and imperialism meant that socialization was on the agenda, and not only in the limited sense possible under capitalism. Capital was internationalizing the division of labor and centralizing economic life; as Marx and Engels had foreseen, the productive forces had now developed to the point where scarcity could be abolished and therefore a classless society was achievable. But this required an internationally centralized economy. For Lenin, imperialism was “the highest stage of capitalism” not just because it was the most recent but because it stood at the doorstep of socialism.

We note, by the way, that Lenin used “imperialism” not in the word’s everyday meaning of domination of weak countries by the strong. The common usage is absolutely true but is not the whole picture; even before the imperialist epoch there had been capitalist imperialism in the everyday sense. It first took place through outright plunder, then through trade relations that devastated the pre-capitalist artisans and workshops of the colonial countries. In contrast, the new epoch saw the all-out export of capitalist relations of production and the conquering of the whole world for the production of surplus value.

Against Kautsky, Lenin argued that the giant blocks of capital created in the new epoch would inevitably battle each other rather than merge; monopoly did not negate competition. Intensified competition for the redivision of the world, not international unification, defined the monopoly epoch. Therefore socialism was not only possible but also necessary. There was no other way out of capitalism’s crises and misery, because the new epoch of war and decay threatened to hurl humanity back to barbarism. Lenin’s view sharply contrasted with reformism’s portrait of capitalist socialization as inherently progressive.

Just as the imperialist epoch produced not a unitary capital but competition between massive rivals, so on the world scale it produced not simply the internationalization of capitalism but the expansion of the hegemonic powers at the expense of others. With the export of capital, capitalist investment now dominated economics and politics everywhere; the surplus value of the entire world was siphoned into the imperial treasuries. Some of the imperial surplus was plowed back for the capitalist development of the colonies; more of it underwrote the financial and service economies of the imperialist powers. Imperialism meant not just super-exploiting labor, although that created misery enough, but also depriving the colonies and semi-colonies of their resources.

In the imperialist epoch, therefore, the countries of the world were divided into two categories: imperialists and their victims. Capitalist oppression of the proletariat and peasantry was now intensified by the super-oppression of the working people of the “imperialized” countries, with the assistance of their own rulers.

While disagreeing with Luxemburg’s theoretical explanation, Lenin shared her view that the new epoch made inevitable imperialist wars to redivide and subjugate the world, and that such wars could in no way be progressive. But in contrast to Luxemburg he believed that national oppression would stimulate progressive liberation movements; moreover, the workers’ defense of the right to national self-determination would help win the oppressed masses to the side of the European proletariat in the fight against capitalism. This two-sided struggle by the working class characterized Lenin’s revolutionary program.

Despite the disputes between Lenin and Luxemburg over how to fight national oppression, neither thought to abandon internationalism and embrace nationalist ideology as such – or to defend imperialism’s conquests as somehow beneficial. But many a social democrat held both views, including the anti-authoritarian “democrat” Bernstein.(32)

Imperialism and the Laws of Capital

Lenin never fully elaborated connection between the laws of capitalist development and capitalism’s transformation into a decadent imperialist system. Hence the theoretical basis of his analysis of imperialism has been controversial. He did, however, give a brief explanation for the export of capital. This has come to be seen as the prime characteristic of his theory of imperialism (in particular, by theorists who deny that the Soviet Union of today is imperialist), so it merits investigation.

On the threshold of the twentieth century we see the formation of a new type of monopoly: first, monopolist capital combines in all capitalistically developed countries; secondly, the monopolist position of a few very rich countries, in which the accumulation of capital has reached gigantic proportions. An enormous ‘superabundance of capital’ has arisen in the advanced countries.

It goes without saying that if capitalism could develop agriculture, which today frightfully lags behind industry everywhere, if it could raise the standard of living of the masses, who are everywhere still half-starved and poverty-stricken, in spite of the amazing technical progress, there could be no talk of a superabundance of capital. This ‘argument’ is very often advanced by petty-bourgeois critics of capitalism. But if capitalism did these things it would not be capitalism; for both uneven development and a semi-starvation level of existence of the masses are fundamental and inevitable conditions and premises of this mode of production. As long as capitalism remains what it is, surplus capital will be utilized not for the purpose of raising the standard of living of the masses in a given country, but for the purpose of increasing profits by exporting capital abroad to the backward countries.

In these backward countries, profits are usually high, for capital is scarce, the price of land is relatively low, wages are low, raw materials are cheap. ... The necessity for exporting capital arises from the fact that in a few countries capitalism has become ‘overripe’ and (owing to the backward stage of agriculture and the impoverished state of the masses) capital cannot find a field for ‘profitable’ investment.(33)

Lenin did not spell out what he meant by the superabundance of capital or the overripeness of capitalism, and this has left his theoretical views open to wide interpretation. To some critics the above passage shows him to be an underconsumptionist because of his stress on the poverty of the masses.(34) But this is doubtful: despite his erroneous insistence on capitalism’s inability to develop agriculture profitably, Lenin had long been an opponent of underconsumptionism. Early in his political life he defended a disproportionality theory against it,(35) and at another point in Imperialism itself, he argued against Kautsky and Hilferding, among others:

The statement that cartels can abolish crises is a fable spread by bourgeois economists who at all costs desire to place capitalism in a favorable light. On the contrary, monopoly which is created in certain branches of industry increases and intensifies the anarchy inherent in capitalist production as a whole. ... The privileged position of the most highly cartelized, so-called heavy industry, especially coal and iron, causes ‘a still greater lack of coordination’ in other branches of industry ... At the same time the extremely rapid rate of technical progress gives rise to increasing elements of disparity between the various spheres of national economy, to anarchy and crises.(36)

This surely reflects a theory of disproportionality, not underconsumptionism – but one very different from Hilferding’s reformist version.

The previous passage on the export of capital, carefully read, also leads to non-underconsumptionist conclusions. First, backward agriculture and mass poverty are given as factors additional or subordinate to “overripeness” that produce the pressure to export capital – not its causes. Second, if impoverishment keeps the masses at home from buying back the full product of their labor, the masses are even more impoverished in the backward countries. As well, Lenin notes that the capitalists are “increasing profits by exporting capital abroad to the backward countries.” If excessive profits with few outlets for investment were the problem, as underconsumptionism implies, why would capitalists search for ways to create more?

Moreover, Lenin was arguing against John Hobson, the non-Marxist underconsumptionist economist who had written a major work on imperialism (he is one of the “petty-bourgeois critics of capitalism”). Lenin places “superabundance of capital” in quotation marks not only to express the irony that what is abundant for capital is miserably deficient for the masses, but also to show that capital is excessive for the capitalists only in a specific sense. As Marx noted, capital is sent abroad “not ... because it absolutely could not be applied at home, but because it can be employed at a higher rate of profit in a foreign country.”(37)

This passage from Marx was cited by Bukharin in a work preceding Lenin’s Imperialism which uses similar terminology:

The export of capital from a country presupposes an overproduction of capital in that country, an overaccumulation of capital. ... It is only in the last decades that capital export has acquired an extraordinary significance, the like of which it never had before.(38)

Bukharin went on to give two major reasons for capital export: 1) the blocking of investment by cartels and trusts in the sectors they control, together with the lower profit rate discouraging investment in the sectors they don’t control; 2) the need to overcome tariff barriers to goods entering foreign countries.

It has also been suggested that Lenin’s analysis of imperialism was based on Marx’s falling rate of profit theory.(39) But this is questionable, since Lenin never used the FRP in his writings on capitalist economy. And when Bukharin linked “overproduction” of capital to a high organic composition of capital, he was referring to the differences between organic compositions that lead to profit equalization, not to the FRP.(40) Nevertheless, the FRP and imperialism theories are consistent with one another: the forces that bring about the FRP account for the drive to export capital as well, and both reach fulfillment in capitalism’s epoch of decay.

First, as already mentioned, higher profits can often be made in backward economies where production costs, notably wages, are lower. The opportunity to take advantage of these lower costs by force (and keep them lower) increases under imperialism, which widens the military gap between advanced and backward countries.

Second, because of the FRP and the growing size of capital investments, the value available to a given firm for investment is often less than the amount required to invest at the frontier of new technology, especially during cyclical downturns. (“A drop in the rate of profit is attended by a rise in the minimum capital required by an individual capitalist for the productive employment of labor.”(41)) Hence surplus value searches for more backward sectors in the undeveloped countries with lower organic compositions of capital and therefore lower capital requirements.

Then there are the reasons given by Bukharin. Although traditional capitalist firms are driven to invest in new production whenever they can afford to, monopolies that dominate an industry in their home country are protected from competitive pressures to reinvest profits at home, and will avoid such investment whenever this means undercutting their own existing production. As well, in order to sell in countries which have erected high protectionist walls (including tariffs), production within those countries is necessary. At present, for example, Japanese companies are building plants in the U.S. in order to bypass American protectionism.

In sum, through the export of capital, the dominant imperialist countries extract more surplus value. Domestic monopoly and foreign imperialism are parallel methods of super-exploitation in which one sector of capital feeds on another. In both, the dominant capitals appropriate surplus value disproportionately. As a result the weaker capitalists whose “fair share” of surplus value is expropriated are held back; their growth is stifled by the cannibalism of the strong.

Imperialism is the last stage of capitalism, and both monopoly and capital export reflect it: no further all-sided advance of the productive forces is possible. Expansion of the productive forces in one country or sector of capital is possible only at the expense of other sectors. This is not simply a geographical point, although the division of the world into a dominant North and a dependent South is its most striking illustration. Value relations have become the fetter on the development of the productive forces that Marx foresaw. As always, capitalism is driven to develop the processes of socialization of capital, in this case internationalization of the economy, and use them against the proletariat. It is the lawful operation of capitalism’s laws in the epoch of decay.

The Limits of Nationalism

The perception of a qualitative change in capital export reflects the epoch of decay from another angle: the productive forces had reached the limit of expansion possible within the boundaries of single states. Hence empires and supranational capitals became necessary. This resulted not only in colonial super-exploitation but also in the extension of economic relations among the imperialist powers. But while capital can cross national boundaries, it cannot transcend nationalism. Whenever supranational unification occurs, it breaks down: Britain during the 19th century, Germany during the two world wars and the United States after World War II reached levels of domination they could not maintain. As Trotsky summed up the First World War:

Why did the war occur? Because the productive forces found themselves too constricted within the frameworks of the most powerful capitalist states. The inner urge of imperialist capitalism was to eradicate the state boundaries and to seize the entire terrestrial globe, abolishing tariffs and other barriers which restrict the development of the productive forces. Herein are the economic foundations of imperialism and the root causes of the war. What were the results? Europe is now richer in boundaries and tariff walls than ever before.(42)

Capitalism is still rooted in the nation, once a progressive institution enabling the bourgeoisie to overcome feudal barriers to production. The nation-state was also critical for preserving the home market for indigenous capitalists against competitors; without it capitalist development in the progressive epoch would have been limited to a handful of countries. But now that capitalist economy has been internationalized, the nation-state is fundamentally reactionary. Rather than advancing production, it retards it; rather than promoting cultural and economic intercourse, it promotes war. The only solution is internationalism, and the only social force whose basic interest is not tied to the nation-state is the proletariat. Hence proletarian internationalism was the practical policy of the Bolshevik revolution in order to break out of imperialist confines.

As we know, imperialism stands for an inequality even more brutal than that of early capitalism. Although military conquest, fictitious capital, monopolies and unequal exchange existed throughout the history of capitalism, in this epoch they are the system’s normal mode of operation. The weaker countries are deprived of much of their surplus value and hence have no hope of reaching the economic level of the imperial powers.

Thus no capitalist country has been able to reach advanced rank under its own power since Japan made it in the last decade before imperialism was consolidated. None of the formerly backward countries, not even those that prospered during the post-World War II boom or through their monopoly of oil production, have risen to the rank of imperialist powers. The old powers have established some junior partners to help in the exploitation of parts of the world, but not even these are independent centers of capital accumulation.(43) This is the final proof that our epoch remains that of imperialist decay. The inequality between nations has been set once and for all, so long as capitalist rule survives.

One country, however, did climb out of backwardness to become a superpower: Soviet Russia. The key to its transformation is that this took place when the USSR was a workers’ state, a product of the socialist revolution itself produced by the contradictions of imperialism.