Apples, robots and robber barons

A discussion has broken out among mainstream economists about the long-term future of US capitalism – namely is there any future for manufacturing in the US?  Or will US capitalism just fade away as a dynamic productive capitalist economy into a ‘rentier’ FIRE economy (based on Finance, Insurance and Real Estate ).  So it survives by driving down the share of labour in the creation of value, both domestically and through investments overseas.

In some ways, it’s refreshing that mainstream economists are finally considering some of the underlying contradictions of capitalist accumulation instead of just assuming that the capitalist mode of production is fine and the only problems are in the financial sector (banks and credit) or with monetary and fiscal policy.  Keynesian guru, Paul Krugman, has started to ‘get it’.  In a recent post on his blog (http://krugman.blogs.nytimes.com/2012/12/11/human-versus-physical-capital/), he cited the latest data from the US Bureau of Economic Analysis on labour’s share in the gross income of the US capitalist sector.

121112krugman2-blog480

Wow! exclaimed Krugman, struck by this figure which shows the share of income going to labour at a post-war low.  He comments: “So the story has totally shifted; if you want to understand what’s happening to income distribution in the 21st century economy, you need to stop talking so much about skills, and start talking much more about profits and who owns the capital. Mea culpa: I myself didn’t grasp this until recently. But it’s really crucial.”  11 December.

So we need to start talking about profits and who owns the capital.  Yikes!  This smacks of Marxist economics.  And indeed, in another post, Krugman recognises just that.   “I think our eyes have been averted from the capital/labor dimension of inequality, for several reasons. It didn’t seem crucial back in the 1990s, and not enough people (me included!) have looked up to notice that things have changed. It has echoes of old-fashioned Marxism — which shouldn’t be a reason to ignore facts, but too often is. And it has really uncomfortable implications.”  Indeed, it does.

Krugman considers whether we are reverting to Marxist talk.  “Are we really back to talking about capital versus labor? Isn’t that an old-fashioned, almost Marxist sort of discussion, out of date in our modern information economy? Well, that’s what many people thought; for the past generation discussions of inequality have focused overwhelmingly not on capital versus labor but on distributional issues between workers, either on the gap between more- and less-educated workers or on the soaring incomes of a handful of superstars in finance and other fields. But that may be yesterday’s story.   ….the wage gap between workers with a college education and those without, which grew a lot in the 1980s and early 1990s, hasn’t changed much since then. Indeed, recent college graduates had stagnant incomes even before the financial crisis struck. Increasingly, profits have been rising at the expense of workers in general, including workers with the skills that were supposed to lead to success in today’s economy.”

wages productivity inequality

It used to be argued in mainstream economics that inequalities were the result of different skills in the workforce and the share going to labour was dependent on the race between workers improving their skills and education and introduction of machines to replace past skills  In most of the 19th century, about 25% of all agriculture labor threshed grain. That job was automated in the 1860s. The 20th century was marked by an accelerating mechanization not only of agriculture but also of factory work. Echoing the first Nobel Prize winner in economics, Jan Tinbergen, Harvard economists Claudia Goldin and Larry Katz describe this as a “race between education and technology.”

But Krugman now recognises that inequalities of income and wealth across US society and the declining share of income going to labour in the capitalist sector are not due to the level of education and skill in the US workforce, but to deeper factors.   He cites two possible explanations: “One is that technology has taken a turn that places labor at a disadvantage; the other is that we’re looking at the effects of a sharp increase in monopoly power. Think of these two stories as emphasizing robots on one side, robber barons on the other.”

Let’s consider whether either of these explains what Krugman considers is the dramatic change in the landscape of income and wealth distribution in US society.  The first seems to be an argument that modern technology is ‘capital-biased’, namely it aims to replace labour by machines over time.  This has become a mainstream discussion about the introduction of robots.  But this too is a Marxist economic insight.  One of the basic Marxist theoretical arguments is that the competitive pressure to make profits and maintain profitability forces capitalist producers to find new technologies that save on the overall costs of production.

It may be possible for newly expanding capitalist economies to use huge supplies of cheap labour to create surplus value rather than using new technology (or ideally a combination of both, as in China and East Asia).  But in more mature (and ageing) economies the supply of cheap labour has run out and capitalists “in the West” can only compete in world markets by either exporting their capital into the emerging economies (imperialism or globalisation) or finding new technologies that raise labour productivity exponentially.

‘Globalisation’ was the story of the period from the late 1970s to early 2000s as the ‘solution’ to falling profitability in the major capitalist economies.  But a new downturn in profitability in the late 1990s and the recessions of 2001 and the Great Recession of 2008-9 has put that solution in jeopardy.  Indeed, now it is being argued that it is that it is no longer cheaper to build factories and expand business in emerging economies because wages there are rising fast.   According to the International Labour Organisation in its World of Work report, inflation-adjusted average wages in China more than tripled over the decade from 2000 to 2010.  And in Asia as a whole, they have doubled. In Eastern Europe and Central Asia, average wages almost tripled.  Yet, in the developed world, wages are just barely higher than they were in 2000.

This has led some to argue that after its 60-year decline, manufacturing may start to return to the advanced capitalist economies.  Then profitability will rise again in the major capitalist economies through a new manufacturing revolution.  Much is being made of the likes of Apple opening up factories in the US rather than Asia. Apple says it will invest $100 million in producing some of its Mac computers in the United States, beyond the assembly work it already does in the United States.  Over the last few years, companies across various industries, including electronics, automotive and medical devices, have announced that they are “reshoring” jobs after decades of shipping them abroad.  In October, Lenovo, the computer giant based in China, said it would begin making its Think-branded computers, including notebooks, desktops and some tablets in the US.

But this is really so much wishful thinking in the US media.  General Electric has hired American workers to build water heaters, refrigerators, dishwashers and high-efficiency top-load washers, but continues to add more jobs overseas as well.  Apple’s iPad and iPhone products, which amount to nearly 70% of its sales, will continue to be made in low-cost centres of manufacturing like China, mostly on contract with outside companies like Foxconn. American manufacturing has been growing in the last two years, but the sector still has two million fewer jobs than it had when the recession began in December 2007. Worldwide manufacturing is growing much faster, even for many of the American-owned companies that are expanding at home.   Wage levels may have risen in emerging economies and stagnated in the advanced economies, but the gap is still huge.   As of 2010 (the latest year available), hourly compensation costs for manufacturing in the US were about four times those in Taiwan and 20 times those in the Philippines.

And while some manufacturing may return to the US, it will not bring jobs with it – on the contrary.  A new study by McKinsey, the management consultants (http://www.mckinsey.com/insights/mgi/research/productivity_competitiveness_and_growth/the_future_of_manufacturing), finds that manufacturing now contributes 20% of global economic output and  37% of global productivity growth since 1995.  But because investment in manufacturing is  ‘capital-biased’, it does not create jobs and is designed to avoid raising wages.  Indeed, according to McKinsey, manufacturing employment fell 24% in the advanced economies between 1995 and 2005.  The wider global story is revealed by the rise in the industrial workforce in emerging economies and the fall in advanced economies in a graph originally constructed by John Smith in his excellent Imperialism and the globalisation of production paper.  Imperialism & the Globalisation of Production

global workforce

In the advanced economies, higher profits can only come from raising the productivity of labour or by a reduction in raw material (energy) costs, rather than lowering or holding wages down through the use of more cheap labour.  The shale oil and gas revolution in North America and parts of Europe may help reduce energy costs over the next decade (maybe).  But getting overall costs down depends very much on the new technologies.

That brings me to the issue of robots, something that is being raised as the imminent way out for advanced capitalist economies to compete in world manufacturing markets.  If manufacturers increasingly use robots, they can do away with expensive labour and all will be well for capitalism.

In some high-profile industries, technology is displacing workers of all, or almost all, kinds.  For example, one of the reasons some high-technology manufacturing has lately been moving back to the US is that these days the most valuable piece of a computer, the motherboard, is basically made by robots, so cheap Asian labour is no longer a reason to produce them abroad.  Robots mean that labour costs don’t matter so much and capitalists can then locate in advanced countries with large markets and better infrastructure.  Even the low wages earned by factory workers in China have not insulated them from being undercut by new machinery. Terry Gou, the founder of Foxconn, announced this year a plan to purchase 1 million robots over the next three years to replace much of his workforce. The robots will take over routine jobs like spraying paint, welding, and basic assembly.

Now mainstream economics has noticed that this is not good news for labour and have suggested that ‘capital bias’ in technology could explain the falling labour share and growing inequalities.  As Krugman put it: “The effect of technological progress on wages depends on the bias of the progress; if it’s capital-biased, workers won’t share fully in productivity gains, and if it’s strongly enough capital-biased, they can actually be made worse off.  So it’s wrong to assume, as many people on the right seem to, that gains from technology always trickle down to workers; not necessarily. It’s also wrong to assume, as some (but not all) on the left sometimes seem to that rapid productivity growth is necessarily jobs- or wage-destroying. It all depends.”

Yes, it does all depend on the class struggle between labour and capital over the appropriation of the value created by the productivity of labour.  And clearly labour has been losing that battle, particularly in recent decades, under the pressure of anti-trade union laws, ending of employment protection and tenure, the reduction of benefits, a growing reserve army of unemployed and underemployed and through the globalisation of manufacturing.

According to the ILO report, in 16 developed economies, labour took a 75% share of national income in the mid-1970s, but this dropped to 65% in the years just before the economic crisis. It rose in 2008 and 2009 – but only because national income itself shrank in those years – before resuming its downward course. Even in China, where wages have tripled over the past decade, workers’ share of the national income has gone down.

Labour's share

But this is not new in economic theory.  Marx explained in detail in Capital that this is one of the key features in capitalist accumulation – the capital-bias of technology – something continually ignored by mainstream economics,until now it seems.  Marx put it differently to the mainstream.  Investment under capitalism takes place for profit only, not to raise output or productivity as such.  If profit cannot be sufficiently raised through more labour hours (ie.e more workers and longer hours) or by intensifying efforts (speed and efficiency – time and motion), then the productivity of labour can only be increased by better technology.  So, in Marxist terms, the organic composition of capital (the amount of machinery and plant relative to the number of workers) will rise secularly.  Workers can fight to keep as much of the new value that they have created as part of their ‘compensation’ but capitalism will only invest for growth if that share does not rise so much that it causes profitability to decline.  So capitalist accumulation implies a falling share to labour over time or what Marx would call a rising rate of exploitation (or surplus value).

In a previous post, Crisis or breakdown, (https://thenextrecession.wordpress.com/2012/09/12/crisis-or-breakdown/), I raised the big issue of whether US capitalism is heading downwards because it can no longer develop sufficiently productive new technology.  Indeed, new investment and thus US economic growth is set to remain at its lowest ever.  This was the thesis of Robert Kurz, Robert Gordon and David Graeber, among others.

So do the ideas that US manufacturing could revive under the spread of robotic technologies refute that prognosis?  Marco Annunziata, chief economist at General Electric company, reckons it does (http://www.voxeu.org/article/next-productivity-revolution-industrial-internet).  He claims that a network of ‘intelligent machines’, software analytics and sensors that he calls the “industrial internet” can spread through industry, deliver huge gains in productivity  and so refute Gordon et al.  Harvard’s leading economist Ken Rogoff also took Gordon’s thesis to task: “There are certainly those who believe that the wellsprings of science are running dry, and that, when one looks closely, the latest gadgets and ideas driving global commerce are essentially derivative. But the vast majority of my scientist colleagues at top universities seem awfully excited about their projects in nanotechnology, neuroscience, and energy, among other cutting-edge fields. They think they are changing the world at a pace as rapid as we have ever seen.”  (http://www.project-syndicate.org/commentary/technological-stagnation-and-advanced-countries–slow-growth-by-kenneth-rogoff).

robot2

If Annuziata and Rogoff are right and Gordon is wrong, does this mean that all is well with capitalism?  Will capitalism be saved by robots, while workers will be able to live the happy life of leisure that John Maynard Keynes in the late 1930s reckoned would be achieved by capitalism round about now? (I’ll return to Keynes prognostications for his non-existent grandchildren in a future post.)   Well, clearly, past technology did not do the trick.  Those predictions of the 1970s that workers would have to worry more about what to do with their leisure time rather than if they could get enough work to make ends meet have not materialised.  But would robots now do the trick?

Well, Marxist economics would say no: for two key reasons.  First, Marxist economic theory starts from the undeniable fact that only when human beings do any work or perform labour is any thing or service produced, apart from that provided by natural resources.  And then, crucially, only labour can create value under capitalism.  And value is specific to capitalism.  Sure, living labour can create things and do services.  But value is the substance of the capitalist mode of producing things.  Capital (the owners) controls the means of production created by labour and will only put them to use in order to appropriate value created by labour.  Capital does not create value itself.

Now if the whole world of technology, consumer products and services could reproduce itself without living labour going to work and could do so through robots, then things and services would be produced, BUT the creation of value (in particular, profit or surplus value) would not.  So accumulation under capitalism would cease well before that robots took over fully, because profitability would disappear under the weight of ‘capital-bias’.  The most important law of motion under capitalism, as Marx called it, would be in operation, namely the tendency for the rate of profit to fall.  As ‘capital-biased’ technology increases, the organic and value composition of capital would also rise and thus labour would eventually create insufficient value to sustain profitability (i.e. surplus value relative to all costs of capital).  We would never get to a robotic society; we would never get to a workless leisure society – not under capitalism.  Crises and social explosions would intervene well before that.

This first reason for why robotic technology won’t save the day is completely ignored or dismissed by mainstream economics because it has no concept of a law of value under capitalism – and for very good ideological reasons.  It thinks only in terms of physical things (with money thrown on top) not in value that needs to appropriated by the owners of capital.  That’s why Krugman’s hint that we should talk about “profits and who owns capital” is unusual.

It’s the second reason why workers won’t get to the leisure society with robots doing the work that has been picked up by mainstream economics.  It is the falling share of labour in total value.  Apart from capital-bias technology, Krugman considers that this may be caused by ‘monopoly power’, or the rule of ‘robber barons’.  Krugman puts it this way.  Maybe labour’s share of income is falling because “we don’t actually have perfect competition” under capitalism, “increasing business concentration could be an important factor in stagnating demand for labor, as corporations use their growing monopoly power to raise prices without passing the gains on to their employees.”  

What Krugman seems to be suggesting is that it is an imperfection in the market economy that creates this inequality and if we root out this imperfection (monopoly) all will correct itself.  So Krugman presents the issue in the terms of neoclassical economics.  Marxists would say it is not monopoly rule, but the rule of capital.  Sure, capital accumulates through increased centralisation and concentration of the means of production in the hands of a few.  This ensures that the value created by labour is appropriated by capital and that the share going to the 99% is minimised. This is not monopoly as an imperfection of perfect competition, as Krugman explains it; it is the monopoly of ownership of the means of production by a few.  This is the straight forward functioning of capitalism, warts and all.

As the BLS graph above shows, the falling share going to labour in national income began at just the point when US corporate profitability was at an all-time low in the deep recession of the early 1980s.  Capitalism had to restore profitability.  It did so partly by raising the rate of surplus value through sacking workers, stopping wage increases and phasing out benefits and pensions.  Indeed, it is significant that the collapse in labour’s share intensified after 1997 when US profitability again peaked and began to slide again.  The counteracting factor under Marx’s law of profitability was again applied with a vengeance.   According to Emmanuel Saez, the top 1% of U.S. households got 65% of all the growth in the economy since 2002. And the top 0.01% of US households i.e. 14,588 families with income above $11,477,000, saw their share of national income double from 3% to 6% between 1995 and 2007.

It’ s not monopoly power or rising rents going to the ‘robber barons’ of the monopolies that forced down labour’s share, it’s just capitalism.  Labour’s share in the capitalist sector in the US and other major capitalist economies is down because of increased technology and ‘capital bias’, from globalisation and cheap labour abroad; from the destruction of trade unions; from the creation of a larger reserve army of labour (unemployed and underemployed); and from ending of work benefits and secured tenure contracts etc.  Companies that are not monopolies in their markets probably did more of this than monopolies.   Indeed, this is exactly what Marx meant by the ‘immiseration of the working class’.

Moreover, inequality or a falling share of labour is not the cause of crises through a lack of demand, as post-Keynesians and many Marxists argue.  Sure, wages as a share of the income is at a post-war low, but total workers incomes are not when social transfers are included.  This is a key point (made by Andrew Kliman in his latest book, among others).  Household consumption as a share of national income is near its record high.  Sure, this is partly due to borrowing to buy homes and big-ticket items on credit.  But is also partly due to welfare benefits and tax credits filling in for those whose wages are too low (as we were told by Mitt Romney (who?), 47% of ‘tax units’ don’t pay income tax in the US).  On my own calculations, it’s the same story in the other major capitalist economies – workers incomes have not fallen as a share of national income since 1981 if social transfers (net benefits and tax credits) are included.

EC as share of OECD income

That means that the idea of boosting wages would save capitalism by restoring demand is bogus.  It would just add to the burden on profitability.  Consumer demand is not the problem; its profitability and investment.

Why is mainstream economics suddenly waking up to these issues?  Maybe it is because some mainstream economists have had a revelation about how capitalism really works.  Maybe they have a sense of injustice about labour’s share.  It seems Paul Krugman fits those two explanations.  But for others, it is more likely that the mainstream is aware of the social implications of growing inequality and the threat to capitalism itself if things go on the way they have been.

If the advanced capitalist economies remain in a long depression and income inequalities remain, the likelihood of social explosions is going to increase.  Faith in capitalism as the only system that works will fade like belief in Christ – but much more quickly.  That is the fear for the mainstream.  It is the same fear that drove Keynes in the 1930s to look for new and more radical ways to ‘save capitalism’ from its own flaws.  The strategists of capital reluctantly accepted some of his prescriptions for a while as Keynesian prescriptions appeared to offer a way out of slumps within capitalism.  But when Marx’s law of profitability exerted itself during the 1970s, Keynesianism was dropped for neoliberal (neoclassical) policies  that aimed to drive up the share of profit and squeeze social benefits.  Now the neoliberal policy has failed and the mainstream (mainly the Keynesians) are issuing an emergency warning.

Yikes – this is the longest post yet!  STOP.

About these ads

31 Responses to “Apples, robots and robber barons”

  1. Charles Andrews Says:

    Figure 3.5 shows the peak in wages for almost all workers (those with some college, with high school, or less) in 1974.

    The John Smith figure comparing industrial workforces shows the number in emerging economies passing the total in developed economies around 1979. However, it is mistaken to date globalization from then. Presumably, his figures include internal industrialization in emerging economies; it is not a count of globalization taken as the outsourcing of jobs from one country to another in pursuit of cheaper wages. The big boosts to globalization in the eastern bloc and China occurred from around 1990.

    The sixteen years from 1974 to 1990 show that globalization is an add-on effect, not the basic cause. Since 1973 or 1974 workers in the U.S. have not been able to raise the real wage above their earnings then. The explanation of this fact is the explanation of both the historically imminent end of capitalism and an insight into the next economic order.

  2. Choppa Morph Says:

    Longest post yet, maybe, one of the best yet, certainly.
    It’s amazing how much easier our task becomes when established authorities open up to our arguments instead of stubbornly ignoring them. Suddenly we’re not arguing in a vacuum any more and our voices can be heard – just a bit.
    Just a niggle for the moment – you write: “only when human beings do any work or perform labour is any thing or service produced, apart from that provided by natural resources.” However, the thing/service (say energy) in question is not so much provided by natural resources as made possible by natural resources. Water, wind, sun, coal, trees, whatever – they all need to be harnessed by labour before they become a thing or service we can use in production or consumption. Marx discusses this early in Book 1. Even plucking an apple from a tree to eat requires the labour of finding it and reaching up. This becomes very clear in a market situation of course.
    This isn’t nit-picking because some utopians use natural resources for free as a back-to-nature solution, frequently throwing in traditional technology and knowhow as an honorary natural resource to make the story more plausible.

    • michael roberts Says:

      agreed

    • matthewrusso9 Says:

      True, but “natural resources” are freely given as use values of nature, on condition of their technical combination with the use value of labor power, as mentioned.

      Nevertheless, these naturally occurring use values exist independently of value production, while the social relations of production characteristic of capitalism – private property in the means of production – can also be extended to these independently existing use values. When these are owned by somebody other than the capitalist making productive use of these, by combining them with labor power, they give rise to the (purely) distributional form of rents.

      However, the same is true even if the productive capitalist also owns the naturally occurring use values as private property. It is only that these appear as a type of surplus profits rather than rents. But this is only a formal negation of rents; the distributional phenomenon remains the same, operating upon the same basis. The productive capitalist is simply “paying themselves” the “rent”.

      The fact is that the same distributional relation extends beyond the form of rent, together with the fact that the use values of nature enter into the *technical composition of capital*, and therefore the OCC, without though affecting the *value composition* of capital. This means that there is no tendency for the value composition to rise as a result in this case. These two phenomena together with the fact that the process of scientific discovery involved in “normally” advancing the OCC itself, also leads to the discovery of *new*, hitherto unknown use values of nature – such as in the case of crude oil – have gone poorly analyzed in Marxism in connection with its theory of capital.

      The first two in particular can act counter to the tendency of the ROP to fall, indicating also that it is an inherent tendency of capital to exploit and plunder natural resources on an *ever increasing* scale. “Ironically”, but actually as a dialectical result, only by transforming these surplus profits into formal rents, or into taxes by means of state ownership, can this tendency itself be limited, as in the case of “cap and trade” rent schemes.

      More later on A. Kliman’s latest book when I finish it.

      • Choppa Morph Says:

        Perhaps we can put the political imperatives a bit more clearly here, Matthew. The economical imperatives you refer to are a) cheapening everything that goes into your commodity, and b) owning everything that goes into your commodity. The political corollaries are commodification of everything by forcing it into market relations – no more gifts of god or nature like air and water, and total control so no one and nothing escapes the money net.
        Formal manoeuvres like changing “profits” into “rents” or “taxes” are no solution as long as the controlling politics are bourgeois – capitalist exploitation remains along with fetishized ie dehumanized social objectives.
        Only on a non-capitalist basis can we properly calculate the social value of natural resources in terms of exchange (how much labour time does humanity have at its disposal?) and consumption (the positive and negative calculus for humanity of any given use of any given resource). We won’t be able to go back to “god-given” or “nature-given” bounty, but we’ll be able to a greater abundance of resources than ever before in our history.
        Only after a socialist revolution has overthrown capitalist social relations, in other words.

  3. paulc Says:

    Very interesting read. There are two questions that I have, the first relates directly to your post. You state; “Companies that are not monopolies in their markets probably did more of this than monopolies.” ‘This’ being ‘the ending of work benefits and creation of un/under-employed reserve army’. Why is this so, [that non monopoly industries were the greater culprits] only it’s not clear to me why you made this particular point.

    The second more general point is that even if your argument here is sound is it not legitimate to say that despite all the failings of capitalism it does appear to have taken hundreds of millions out of poverty in the developing world whilst only causing moderate harm to those in the developed world [at least those parts of it that still have a welfare/benefits system ie;not Greece]. Doesn’t the very great gains of those in the developing world greatly outweigh the ‘mild’ attrition of living standards in the relatively affluent west. [sorry if this is sacrilege and my guess is that your answer might be that with a more broad based ownership of capital all would be significantly better off and sharp inequalities would be eroded in which case you can just say -yes that's right!] Thanks for the article.

    • michael roberts Says:

      Paul

      I think I mean that those companies facing severe competition (unlike monopolies) had to resort more measures to reduce costs.

      Yes. of course, many workers in emerging economies have improved material conditions by moving from the peasant countryside to the cities and industrial jobs – but at a price, as Engels pointed out in his seminal work on the conditions of the industrial woirking class in England in the mid-19th century. But imperialism has also imposed a terrible price on the people of the world through genocidal wars (the Congo etc), puppet dictators and direct military intervention (Vietnam, Afghanistan etc). And it is has extracted much of the value created by the growing industrialisation of the emerging capitalist economies. And remember inequalities remain very high in many emerging economies. Inequality between rich and poor in both advanced and emerging capitalist economies has worsened, not improved. See some of my posts on this.

  4. Walter Daum Says:

    Michael,

    You write, on the one hand, that labor’s share of national income has gone down, and explain that “capitalist accumulation implies a falling share [of new value] to labour over time or what Marx would call a rising rate of exploitation (or surplus value).”

    But on the other hand you say that “ workers incomes have not fallen as a share of national income since 1981 if social transfers (net benefits and tax credits) are included.”

    Unless I am misreading something, both of these can’t be true. The rate of exploitation surely has to include all forms of compensation for workers.

    In any case, I am dubious about the second claim above. For the U.S. at least, I would guess that one explanation for the apparent leveling off of workers’ total compensation is because the data for “workers” include salaries and benefits of people who are in fact capitalists or their servants; and their rising compensation overcomes the declining compensation for genuine working-class people. Another factor might be the increase in multi-earner families since the 1970′s, which would raise family compensation even while the rate of exploitation of the individual worker rises.

    What’s your take?

    Walter Daum

    • michael roberts Says:

      Social transfers are the net distribution of taxes and benefits made by the government sector. Employee compensation is wages plus benefits provided by the employer. So while in the capitalist sector, employee compensation as a share of total value added has fallen, government taxation has led to a redistribution to employees through social transfers (welfare benefits and tax credits) that has supplemented employee compensation just about enough to sustain employee incomes as a share of national income in the OECD economies (as an average – not in every economy). Andrew Kliman deals with this in his book, The Failure of Capitalist Production, for the US.

      Yes, you are right. The figures are biased upwards by including the incomes of top executives. It is a matter some debate how signficant this is. I have covered some of this debate in previous posts: The Class rate of profit etc.

      But the main point that I am making is that a falling share of wage income is not the reason for the crisis and the solution will not be boosting wages to ‘save capitalism’, however necessary that is for the 99% to improve their lives.

      • Choppa Morph Says:

        This discussion is confusing. There are different concepts involved – share of national income, poverty levels, purchasing power… not to mention exploitation.
        Most workers – wage-earners – in established imperialist countries will have felt the cold blast of reduced real wages and poorer conditions over the past three decades (taking Thatcher-Reagan 1980 as a good tipping point). This has not been compensated for by increased transfers given the non-stop cuts in unemployment benefit, social security benefits, health benefits etc.
        So perhaps you’d better explain how employee incomes can retain their share of national income while individual incomes plummet, and tote up reasons for continued high levels of transfers despite all the cuts and austerity.
        And if the profit share remains stable, what happens with regard to a lower rate of profit? There are huge problems here relating to absolute numbers versus relative (percentage/proportional) numbers, and we’re entering crisis territory when the absolute numbers start interfering (too many businesses nibbling from the profit cake? Too many parasites sharing the loot – as happened with the proliferating petty aristocracy in tsarist Russia?).
        One of my all-time favourite Marxist texts (runner-up to Preobrazhensky’s The New Economics) is Roman Rosdolsky’s The Making of Marx’s Capital (which it’s time for me to reread – so more detailed reference then). In his book he makes a clear case for the primacy of absolute numbers in the grand scheme of things – quantity *will* transform into quality, in other words, if too much is produced. But our problem most of the time is that this only becomes apparent in crises, and the rest of the time we can pretend things are relatively stable and use the percentage/proportional analysis (the equilibrium case).
        Keynesianism was a bourgeois effort to counter the absolute numbers built up during the imperialist surge round 1900, ww1 and the boom and crash following it. Thanks to Stalinist policies in the USSR and a second world war (same thing, in a lot of ways) it succeeded. Krugman and others are clutching at this straw again – and priming politicians (and capitalists) for a huge round of concessions as an alternative to total collapse or universal destruction (ww3).
        However, I’d appreciate it if you could spell out some of this in a post summarizing the impossibility of a Keynesian escape this time round given the state of class relations, wage-profit relations and economic-political imperatives.
        A large part of it has to do with fundamental economic stagnation since 1980 (akin to the Brezhnev era in the USSR in some ways), and with accumulated political tensions aggravated by the pressure cooker repression applied during this period by triumphalist neo-liberal governments.
        In other words, maybe – relate the falling rate of profit (product of stagnation) to the economic political realities shaking the current system to its foundations.
        Please!

  5. avgå alla (@avgaa_alla) Says:

    great post as is all your blog.

    Just a plain old leftist here, not deeply into economic
    Trying to think a bit here:
    If a factory owner replaces 100 workers with 10 machines and 1 worker to supervise them? Then the factory owner will still get a high profit, right? And could even afford to pay the worker decently. The problem is that globalization makes investing in production meaningless as you can get 100 workers in China cheaper than 1 robot in US.

    The problem in terms of the class struggle in this example , is that you get 99 people that are now unemployed and competing for work. Which is always labours nightmare.

    Is not unemployment itself a strong driving factor to keep salaries down here?

    • michael roberts Says:

      This is an important part of Marxist economic theory. If one capitalist company does what you say, then it will gain an advantage in the market place by saving on wage costs as the new machines don’t cost more. But then the company would not have made the change unless it did. And as you say, it could even pay more to remaining worker to supervise them. This is where mainstream economics stops. Profitability has risen and all is well. But Marxist economics shows that competitive pressures will force all other companies to try and do the same. And if they do, then the extra value (productivity) created by the smaller labour force using the machines will eventually be crossed out by the extra cost of all the new machines. The organic composition of capital (cost of machines versus labour) rises and the rate of surplus value (profit over wages) wont rise enough to compensate, eventually. Thus the law of the tendency of the rate of profit to fall – a law denied theoretically and empirically by the mainstream.

      Yes, Chinese companies can compete by using very cheap labour and even try and use better machines too. And again as you say, this process of capitalist accumulation continually produces a reserve army of labour that keeps wages down.

  6. Ed Says:

    A fantastic and exciting post, Michael! Could Krugman’s introduction of Marxist analysis into the discussion, no matter how tentative or partial, signal an intellectual sea change perhaps? Useful insights as ever.

  7. erikness1 Says:

    I really liked this article!

  8. gfmurphy101 Says:

    Reblogged this on gfmurphy101.

  9. kyleathompson Says:

    A great post that sums up the issues very well. If the Keynesians start pushing for a campaign of “trust-busting” it will be important to emphasize that such measures are not a way out of the contradictions of capitalism.

    In any case I am sure all Marxists are celebrating the possibilities this newfound “respectability” will bring us. We are getting hammered in the struggle between capital and labour, but a victory in the war of ideas is a victory nonetheless!

  10. Thomas Weiß Says:

    One could add that it is not just labour which creates value, but a special kind of labour: productive wage labour. Labour in commerce, finance, advertisement, military etc. does not create value, it is unproductive labour. In addition, if wage workers would be replaced not by robots, but by slave labour, this would have the same effects described in the post. (I am following the reasoning of e.g. Alan Freeman.)

    • Thomas Weiß Says:

      Only labour which is in a direct relationship (proportional) to the quantity of products produced creates value. “Fixed” labour, labour necessary for production regardless whether 1 or a thousand products are to be produced (Marx mentions in Grundrisse supervision, planning, organising etc.) does not create value. Marx believes (in Grundrisse) that the growing importance of this kind of labour undermines the law of value and capitalism in the same way as more and more mechanisation and automatisation.

  11. paulc Says:

    Choppa Morph Says on December 14, 2012 at 2:35 pm:

    “Most workers – wage-earners – in established imperialist countries will have felt the cold blast of reduced real wages and poorer conditions over the past three decades (taking Thatcher-Reagan 1980 as a good tipping point). This has not been compensated for by increased transfers given the non-stop cuts in unemployment benefit, social security benefits, health benefits etc.
    So perhaps you’d better explain how employee incomes can retain their share of national income while individual incomes plummet, and tote up reasons for continued high levels of transfers despite all the cuts and austerity.”

    Curious to know what you make of this Chris Dillow piece titled ‘ON WAGE AND PROFIT SHARES’ here in part:

    “The wage share is lower now than it was at any time up to the early 80s. However, this reflects not so much a high profit share as a rise in self-employment incomes.Since the mid-90s, the wage share has risen and profit share fallen.During the recession, there has actually been a shift in incomes from profits to wages. Since 2007Q4, the wage share in GDP has risen by one percentage point and the profit share has fallen by almost two percentage points – thanks to lower oil and financial profits; non-oil, non-financial profits have held up”
    He concludes:”The general message I take from this is that the claim “capitalists exploit workers” is a general statement about the nature of capitalism. It might be true or false – I think true but that’s another tale – but it is no truer or falser now than normal.Insofar as workers’ living standards are being squeezed, it’s because of the recession and stagnation in productivity, not because the rate of capitalist exploitation has increased to unusually high levels. ”

    http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2012/12/on-wage-and-profit-shares.html

    • Choppa Morph Says:

      @paulc – What Chris D says, and some of the comments there take this up, is far too vague about what profits are.
      Two immediate remarks:
      One, the distinction between productive and unproductive labour is very important in relation to profits and wages. There is an awful lot of unproductive labour (not creating surplus value in the production of commodities) whose pay is added to the wages account. One glaring example is fat cat functionaries. But regardless of rank (whether non-owning CEO or humble wages clerk) all non-productive remuneration represents profit. A good dollop of profits is portioned out this way, and another is also spread around to non-productive sectors (arms, advertising, religion) to feed the class – ie maintain some kind of mass base for the bourgeoisie. This isn’t accounted for in much of what we read on the issue.
      Two, the self-employed, as we shouldn’t forget, are not part of the working class but petty-bourgeois, owning their own means of production and selling their own product (from Picasso to plumber to courtesan). What they get is profit not wages. As we know, many self-employed are ripped off by leasing scams (hairdressers leasing a chair and a sink, lumberjacks leasing forestry machines, whatever), and become a kind of worker without employment benefits, but formally they’re in the same petty-bourgeois shit as the poor peasant in debt up to his eyeballs. Another great chunk of the petty-bourgeoisie is busy exploiting itself and its family (eg small shopkeepers).
      So perhaps a pro like Mike could also shed a bit of light on how these factors affect a chart like the one Chris Dillow shows us.

  12. Edgar Says:

    All things being equal, i.e. organic composition o fcapital remains constant, why doesn’t competition force companies to take less surplus value by making the product cheaper?

    • Choppa Morph Says:

      @Edgar: That’s exactly what competition forces most companies to do. However, the companies that invest best and become most productive are able to exploit competition by simultaneously raising prices for a product of supreme attractiveness (the latest and greatest and most essential) and reducing their own labour costs, in some cases to practically zero, if they are mechanized enough. The thing is, that most surplus value is produced in labour intensive branches (backwards agriculture and industry, services) but siphoned away from its source of production through the mechanisms described in Capital III. So we have a topsy-turvy situation where the branches of capital employing least labour are able to appropriate most profits.
      Treat yourself to the early parts of Capital III, they’ll make this world of apparent contradictions a whole lot clearer. Marx also deals very clearly with this in Wages, Price and Profit (aka Value, Price and Profit). A lot happens in the system before the value produced by labour ends up divvied up into the prices we see in catalogues or in the shops.

    • Thomas Weiß Says:

      In addition: According to bourgeois theories, competition does exactly this. At least the so-called marginal producers do not make profits, they are forced to sell at cost prices making no profits. The more efficient ones, however, if there are, make profits, what bourgeois economists call producer’s rent. Others, following Joseph Schumpeter, would claim, there are always extra profits. Technological innovators get an extra profit, which gets lost again, when the imitators catch up. But by then new innovators have appeared, so new extra profits arise.
      A Marxist answer would be, that if on the one side capitalists sell just at cost prices, making no profits, on the other side, capitalists, who buy these products just at cost prices, get all the surplus. Competition drives for a “fair share” for both groups of capitalists. The producers would not produce, if they do not get their “fair share” of the surplus, so buyers are prepared to pay prices according to the labour theory of value.
      This is similar to the reasoning with the equalisation of the rates of profit between branches. Nobody invests in low rate of profit branches, everybody invests in high rate of profit branches, so competition enforces tendentially an equalisation of rates of profits between branches.

      • Edgar Says:

        My reasoning to my question is that there must be a surplus because the capitalist class needs to reproduce itself, i.e. there is a class who live off the labour of others, therefore that labour must produce surpluses.

        And this is my point, the remuneration to management is a part of that surplus going to the expropriators, and any rate of profit that excludes this is fundamentally flawed.

  13. Paul Cockshott Says:

    I find the claim that the wage share after social transfers is not supported by your graph nor is it theoretically right. Your graph shows falling wage share after transfers for the last decade, but the transfers, to the extent that they are covered by government borrowing are compatible with the underconsumptionist thesis. If the share of national product appropriated by capital rises, and given that the ultra rich despite their huge luxury consumption, do not consume all of this how can the process continue? Only by those who symbolically appropriate the surplus lending it to the state or working class familes who do the real consumption. But this entails a growth of public and private debt which was the trigger for the crisis.

    • michael roberts Says:

      Paul
      Thanks for your comments. It’s difficult to reply properly when on holiday so I may make a fuller comment on return. Suffice it to say now that the graph does show a decline from 2004 but it also shows that wages after transfers diverged sharply from the mid 90s from wage share before transfers govt deficits and debt ratios were not large during that period. On the contrary deficits were falling in the period up to the recession of 2001. Consumption was rising when the crisis broke in2007 and did not fall until 2009 well after investment collapsed. FALLING profitability from 2005 is more likely cause of the crisis and the great recession than underconsumption. But more on this soon.

  14. Paul Cockshott Says:

    So you dont think that the ratio of debts to income flows was a critical factor?
    Why not?

    • michael roberts Says:

      Paul
      difficult to reply when on holiday. the rise in debt of fictitious capital was a key factor in the depth and length of the Great recession and a major reason why the recovery has been so weak as it weighs down on the ability of the productive sector to invest. But if you mean do I think that the rise in this debt was the result of falling wage share and its collapse was the main or underlying cause of the great recession, then I dont think so. The housing boom collapsed because prices outstrecthed even debt financed incomes of households subprime or not. The great recession was triggered by that but profits fell first followed by investment and employment. Wages did not fall until after that. So it was not the debt that caused a collpase in household incomes and thus consumption did not lead the crisis but followed it down. This wac a capitalist overaccumulation crisis led by investment.

  15. lbattisti80 Says:

    I have this question.

    One undeniable thing of capitalism’s history is the raise of productivity during centuries. The product for hours worked has increased during last 200 years.

    The consequence of it, it’s that you need less labour to produce the same amount of things. If we suppose that total production raise less than the total productivity, in the long run the need of labour for production falls.

    The example of “workerless” companies it’s clear. It’s quiet easy to say that in future decades also other industries will follow this trend..

    In the long run there are 2 possibilities: 1) an ever growing unemployment (or a fall in birth rate) 2) the work day decrease from 8 to 6 or 4 hours.

    Am i right? or am i making some mistakes?

    Surely, with a socialist society we would follow the second path.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


Follow

Get every new post delivered to your Inbox.

Join 1,290 other followers

%d bloggers like this: