Trump, trade and technology

US President-elect Donald Trump reckons that the cause of the losses in manufacturing jobs over the last 30 years has been the rigging of trade terms by low labour-cost manufacturing in China and Mexico.  So it is trade and the shifting of production locations by US multi-nationals overseas – in other words, globalisation.

This claim has upset mainstream economists who see ‘free trade’ as a totem of economic theory.  From Ricardo onwards, mainstream economic theory reckons that free trade is beneficial to all by applying the ‘comparative advantages’ that each trading nation has to make in exchanges of commodities.  Such trade is then mutually beneficial.

Actually, this theory is fraught with flaws, as Anwar Shaikh has only recently spelt out in his book, Capitalism: Competition, Conflict, Crises, while mainstream economist Dani Rodrik has pointed out that the so-called ‘Pareto optimum’ of equality of gains and losses cannot be achieved.  Rodrik argues in his book, The Globalization Paradox that democracy, national sovereignty and global economic integration are mutually incompatible.

Keynesian guru Paul Krugman has always been a proponent of ‘free trade’.  Indeed, he got his Nobel prize in economics for a ‘new’ theory of international trade that reckoned, even with tariffs and market imperfections, international trade would be beneficial to all participants.

From this position, Krugman has recently been at pains to argue against the Trump thesis that the loss of American manufacturing jobs is down to ‘nasty foreigners’ with their trading trickery and to American companies taking their factories overseas and selling their goods back into the US.

In a recent short paper and on his blog, Krugman shows that very few US manufacturing jobs would have been saved with different trade policies or by not agreeing to NAFTA, for example.  Manufacturing employment in the US fell from around a quarter of the work force in 1970 to 9% in 2015.  Krugman finds that “trade is less than half the story”.  Absent the US trade deficit, manufacturing may be a fifth bigger than it is. “That wouldn’t make much difference to the long-run downward trend, but looms larger relative to the absolute decline since 2000.”

Another study by Autor et al reckons competition from China led to the loss of 985,000 manufacturing jobs between 1999 and 2011. That’s less than a fifth of the absolute loss of manufacturing jobs over that period and a quite small share of the long-term manufacturing decline.  “So America’s shift away from manufacturing doesn’t have much to do with trade and even less to do with trade policy.”

The biggest reason Trump — or anyone else — can’t bring back home these manufacturing jobs is because they have been lost in large part to the success of efficiency. Manufacturing output in the US was at an all-time high in 2015. Over the past three-and-a-half decades, manufacturers have shed more than seven million jobs while producing more stuff than ever. The Economic Policy Institute (EPI) reported in The Manufacturing Footprint and the Importance of U.S. Manufacturing Jobs that “If you try to understand how so many jobs have disappeared, the answer that you come up with over and over again in the data is that it’s not trade that caused that — it’s primarily technology,”…Eighty percent of lost jobs were not replaced by workers in China, but by machines and automation. That is the first problem if you slap on tariffs. What you discover is that American companies are likely to replace the more expensive workers with machines.”

What these studies reveal is what Marxist economics could have told them many times before.  Under capitalism, increased productivity of labour comes through mechanisation and labour shedding i.e. reducing labour costs.  Marx explained 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 ( 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.

Marxist economists have already provided empirical evidence for this tendency.  G Carchedi in a recent paper shows that the ‘technical composition’ of capital (the value of machinery and plant relative to the number of workers) in productive sectors has risen in the last 60 years in the US (while profitability has fallen secularly (ARP)) – see ‘OCC’ in the graph below.  My own estimates show that the US organic composition of capital (the value of technology and plant to the value of labour power in wages etc) rose 46% in the last 70 years.

occ

This ‘capital bias’ in technology could also explain the falling labour share and growing inequalities.  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 too much that it causes profitability to decline.  So capitalist accumulation implies a falling share of value to labour over time or what Marx would call a rising rate of exploitation (or surplus value).

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.  But even 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.

As he put it a few years ago: “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.”

So it depends 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 underemployed and through the globalisation of manufacturing.

This is the real reason for American workers falling behind in wages relative to increased productivity and investment in new technology that sheds jobs.  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 – and by the introduction of new technology to replace labour after a major slump in production.

Another study found that the “negative correlation between the (weaker) penetration of collective bargaining agreements and increased wage inequality is strong. This result applies to the relationship between the lowest and highest wages, but also between the median wage and the hi ghest wage. Lower trade union density and lower unemployment also increase wage inequality.” So it was the weakened bargaining power of unions and higher unemployment combined with a marked decrease in redistribution through taxes and transfers that was the main explanation why Americans have fallen behind in income since the 1980s.

In this context, the latest report by the world’s top experts in the field, Thomas Piketty, Emmanuel Saez and Gabriel Zucman on the extreme inequality of incomes in the US, is perfectly explicable.  The trio find that the bottom half of the income distribution in the US has been completely shut off from economic growth since the 1970s. From 1980 to 2014, average national income per adult grew by 61% in the US, yet the average pre-tax income of the bottom 50% of individual income earners stagnated at about $16,000 per adult after adjusting for inflation. In contrast, income skyrocketed at the top of the income distribution, rising 121% for the top 10%, 205% for the top 1% and 636% for the top 0.001%!

In 1980, adults in the top 1% earned on average 27 times more than bottom 50% of adults. Today they earn 81 times more. This ratio of 1 to 81 is similar to the gap between the average income in the United States and the average income in the world’s poorest countries, among them the war-torn Democratic Republic of Congo, Central African Republic, and Burundi. And the increase in income concentration at the top in the US over the past 15 years is due to a boom in capital income i.e. income from dividends, interest and rents, not higher wages.

income-growth

It’s a tale of two countries. For the 117 million Americans in the bottom half of the income distribution, growth has been non-existent for a generation while at the top of the ladder it has been extraordinarily strong. And this stagnation of national income accruing at the bottom is not due to population aging. Quite the contrary: for the bottom half of the working-age population (adults below 65), income has actually fallen. From 1980 to 2014, for example, none of the growth in per-adult national income went to the bottom 50%, while 32% went to the middle class (defined as adults between the median and the 90th percentile), 68% to the top 10% and 36% to the top 1%. The trio comment: “An economy that fails to deliver growth for half of its people for an entire generation is bound to generate discontent with the status quo and a rejection of establishment politics.”  Indeed.

And because progressive income taxation has been eroded and social benefits cut back, government taxation and transfers have had little redistributive effect on the inequality caused by the market. “There was almost no growth in real (inflation-adjusted) incomes after taxes and transfers for the bottom 50 percent of working-age adults over this period”. As the trio say: “The diverging trends in the distribution of pre-tax income across France and the United States—two advanced economies subject to the same forces of technological progress and globalization—show that working-class incomes are not bound to stagnate in Western countries. In the United States, the stagnation of bottom 50 percent of incomes and the upsurge in the top 1 percent coincided with drastically reduced progressive taxation, widespread deregulation of industries and services, particularly the financial services industry, weakened unions, and an eroding minimum wage.” 

So the loss of US manufacturing jobs, as it has been in other advanced capitalist economies, is not due to nasty foreigners fixing trade deals.  It is due to the inexorable attempt of American capital to reduce its labour costs through mechanisation or through finding new cheap labour areas overseas to produce.  The rising inequality in incomes is a product of ‘capital-bias’ in capitalist accumulation and ‘globalisation’ aimed at counteracting falling profitability in the advanced capitalist economies. But it is also the result of ”neo-liberal’policies designed to hold down wages and boost profit share.  Trump cannot and won’t reverse that with all his bluster because to do so would threaten the profitability of America capital.

 

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46 Responses to “Trump, trade and technology”

  1. Tornike Chivadze Says:

    1- “in Marxist terms, the organic composition of capital (the amount of machinery and plant relative to the number of workers) will rise secularly.”

    2- My own estimates show that the US organic composition of capital (the value of technology and plant to the value of labour power in wages etc)

    Michael is it two different estimates ?

    • Apostolis Says:

      He missed to point that it is the value of the machinery and not the machinery themselves.

      He corrects himself later.

      • H A Cox Says:

        Yes, his first statement is the technical composition of capital. The second one is also incorrect because that is the value compostion of capital. The only changes that the OCC reflect are changes due to increases in productivity of labor. The VCC reflects other changes. The OCC is best seen as C/v+s. He makes the distinction between OCC and VCC because the whole point of Marx’s theory of capitalist accumulation is that capitalist inevitably are driven to raise the productivity of labor and thus lead to the fall in the rate or profit. But the value ratio of capital can vary due to other factors.

    • sartesian Says:

      Marx uses the term “organic composition of capital” to represent the relation, the “strict correlation” as he puts it in Volume 1 between the technical composition of capital– expressed as relations of mass, as physical relations– and the value composition of capital, which embodies the historical trend of the accumulation of the means of production as value to displace, expel, and replace living labor in both the production process and the valorization of process. Yes, at any particular moment the value composition of capital might change for reasons other than the historical tendency; but that doesn’t alter the historical tendency, nor does it nullify the accuracy of the organic composition of capital as an expression of the relation between the physical components and the value components.

  2. paulc156 Says:

    Interesting read. Germane to the productivity-manufacturing employment question, Susan Houseman has recently countered the assumption that greater productivity is a good explanation for reductions in employment by showing that productivity gains are all in the computer sector whilst 87% of manufacturing has no productivity gains on recent decades.
    https://www.washingtonpost.com/posteverything/wp/2016/10/18/dont-blame-the-robots-an-interview-on-manufacturing-automation-and-globalization-with-susan-houseman/?utm_term=.45960ff528ba

    • sartesian Says:

      Really? How does she explain the decline in hours necessary to produce an automobile? Hours necessary for the production of a ton of steel; increased on-miles operated per crew hour on railroads since 1992; or the incredibly increase in “throughput” of maritime freight via containerization?

      Houseman writes: “If one excludes the computer industry from the numbers, manufacturing output is only about 8 percent higher now than in 1997. It is about 5 percent lower than before the Great Recession.”

      Yeah, no shit, Sherlock, we know that. Eight years after the steepest decline since WW2, output is only 8% higher, but guess what? manufacturing employment has declined by 30% since 1998. That’s a productivity increase.

      Is manufacturing output still 5% below 2007? We know that too, but manufacturing employment is 14% less than it was in 2007. That’s a productivity increase also.

      It’s all about profit, the one thing Sherlock Houseman never mentions.

      Almost enough to make one turn to prayer: “Dear Lord, save us from our economists, and we’ll handle the bourgeoisie ourselves.

      • Henry Says:

        Given the hours of research Houseman has put into these problems you could do the courtesy of returning the favor and then respond in a less witless and more critical way.

        That way Marxists won’t be thought of as ignorant dogmatists.

      • paulc156 Says:

        Try reading the link that’s clearly visible in her Wapo interview.
        http://www.upjohn.org/sites/default/files/pdf/state-of-american-mfg.pdf

        Between 2000 and 2007 (no crash period) there was a ‘precipitous’ decline in manufacturing jobs of some 20%. Globalisation/offshoring is the prime reason cited. Relative declines in the ratio of manufacturing employment to over-all employment prior to this period, going back decades is in part a story if automation. Not so in the 21stC.

      • sartesian Says:

        Hours of research to tell us what? Computer and electronics (and telecom) have accelerated productivity levels? As I said we know that. We also know that it now takes 1.9 hours to produce a ton of steel in the US, down from 10 hours per ton during the “golden period” post WW2 to 1970. Steel production, gross output, is down by 40% since 1979? I agree. Production worker employment in steel is down by 85 percent. So the industry is producing 60% of the product with 15% of the workers. Is that a productivity improvement or not?

        Let’s see, the industry used to produce 130 million tons with
        100X number of worker hours, and now produces 78 million tons with 15X worker hours. Is there a greater output per hour or not? Take all the time you need to answer that question. You don’t want to appear as an ignorant dogmatist, after all. My rudimentary math skills tell me there has been an output/hour ratio increase between the two of about 4.

        2000-2007, no crash period? Uhh……there was this period 2001-2003 that was a recession, when the bulk of the decline in manufacturing employment took place. That recession was instrumental in driving average wages off their 2000 levels, the highest wages had been post 1973; in addition that period also so draconian controls on capital expenditures to the point where the fixed capital replacement rate in the US fell below 1:1, meaning that fixed capital was being consumed at a rate above its replacement– yeah actually I have done hours of research into this since 2001.

        Between 2003-2007(pre the next recession), manufacturing employment does not recover, but declines modestly.

        When capital spending resumes (around late 2005) what happens? Wages begin to creep up in the US, and the rate of profit turns down.

        The trend in manufacturing employment has been downward for 50 years, with the decline accentuated during downturns, and each recovery being a bit less robust and giving us slower growth than in the previous period, and with continuous attrition of production workers.

        There’s no argument about any of that– but either fewer operating employees are hauling increased loads of traffic over the railroad networks in fewer hours– for whatever reasons– centralized traffic control, containerization, better blocking of trains, GPS location of assets in real time, highly efficient locomotives, elimination of cabooses, reduced crew agreements imposed on the work force, work rule changes– or not, or there is no improvement in ton-miles per crew hour. Either output per production hour has increased or it has not. It’s just that simple.

      • sartesian Says:

        And yes, productivity growth in the railroads, output/crew hour, slows down after 2000– the growth between 1991 and 2000 was about 50%. Between 2001-2009, the growth is less than half that.

      • Henry Says:

        Hours of research at least tells us that the individual has considered all aspects of the problem, even if we conclude an agenda of some kind is still at play.

        As Marx said thee is no royal road to science. It is a combination of the hard slog and applied intelligence.

        On this issue I don’t think you are engaging in the argument, simply lazily applying your dogma.

        You do not factor in any structural or organisational changes in your schema and you do not consider any changes in the way these things are measured, i.e. discontinuities.

        Your comments so far tell me a ‘debate’ would be pointless. Which is a shame because I had you marked out as a first class thinker, and in many respects the opposite of someone like Boffy.

        I guess we all have our off days

      • sartesian Says:

        Hours of research doesn’t tell us the investigator has considered all aspects of the problem. I’m sure Houseman spent hours of research, and clearly, she hasn’t considered all aspects of the problem.

        All aspects of the problem would include some analysis of the changes in the value composition of capital over the period in question, the time per unit of production, the trajectory of profits over the period in question, the inability of circulating capital to “realize” the investment in fixed capital in a timely enough fashion, so that while turnover of circulating capital increases, the turnover of the entire capital, including the fixed portion actually slows down. I did not read any of that in either the WaPost article or the linked pdf.

        I don’t think I have a “dogma” such that it is, anymore than I have an “ideology”– a “way of looking at the world” that explains everything without having to do further investigation.

        I don’t know what is meant by factoring “structural” or “organizational” changes in my “schema.” If you could give me an example of what you mean, I’ll try to satisfy the inquiry. I think we can pick specific industries and show how in fact there was, at specific moments, increased applications of technology, boosting both productivity– that is output per hour– and “re-productivity”– i.e. reproducing the workers wage in less time, and how over the extension of that “moment” the rate of increase in surplus value fails to offset the tendency of the rate of profit to decline.

        Thank you for the kind remarks, and I’m sorry to have disappointed you. Indeed, we all have off days.

    • grugnus Says:

      I think R.J. Gordon’s right that the period from the late 19th century up to the 1960s, exploiting the Second Industrial Revolution, marks the peak in capitalism’s historical capacity to progress the productive forces. Other than during the very brief late ’90s/early 00s dotcom bubble, real productivity growth in the mature economies since the ’70s has been disappointing. The reason for this is that the next logical step in the productive forces’ development is very large-scale computerized automation, which ’90s cyber-utopians so wrongly prophesized was just on the horizon, and which everyone fears so much these days. Capitalism isn’t likely to get far in this process, because this kind of automation is of a wholly different kind, threatening an unacceptably high (for capital/profitability) cost of increase in the organic composition of capital. Globalization is just part of a response to this dilemma, by breaking down barriers to the flooding of the system with mass cheap labor, in lieu of healthy investment in technological innovation/productivity. Capitalism can’t afford to favor labor-shedding tech. with the same vigor it used to. Continued stagnation seems more likely than automation of itself into obsolescence.

  3. Charles A. Says:

    Increase of productiveness by means of new machinery embodying new technical processes has gone on throughout industrial capitalism. So have booms and crises, and there is a connection. Through it all the working class was able to win real gains. What is new is the long-term stagnation of the real median wage, since 1973 in the U.S., with no turnaround in sight. This unprecedented reversal cannot be explained by saying that capitalists suddenly became even more vicious. Capital has run into a historical barrier that it cannot overcome.

    • sartesian Says:

      Yes, but saying capital has run into an historical barrier does not mean that the bourgeoisie HAVEN’T become even more vicious. Of course they have, They need to become more vicious in the attempt to offset the decline in profitability.

  4. Sam Swicord Says:

    “Such trade is then is mutually beneficial.”
    * Such trade is then mutually beneficial ?

  5. ucanbpolitical Says:

    Useful but incomplete. In analysing an economy it is necessary to analyse both the value relationships (quality) as well as physical relationships (quantity). Viewed in this way we find that the fall in employment and well paid jobs is not only the product of rising productivity but the absolute fall in production as well. For example in 1978 the US produced 25% of the western world’s raw steel or 113m tons, today only 78m tons. Then the US produced 1.6 million housing units compared to only 0.8 million today (average 2010-2015 and they are smaller) and if we take autos it produces 50% less today.

    While the quantity of goods produced in the goods producing sector has gone down absolutely, it has expanded absolutely in the productive service sector. So today average coffee take away sales for the over 18s is 0.54 cups per day. This did not happen in the 1970s or 1980s. It is for these reasons that corporate business rather than manufacturing should be our area of concern and when we examine corporate business with its preponderance of service sector productive industries, we find a result dissimilar to that found in the manufacturing sector on its own. Whereas the manufacturing sector shows a 4.2% weighting for variable capital (not annual wages which is partial) the weighting for corporate business has remained at about 10% (as determined by the turnover formula). But then that is to be expected given the rise of labour intensive but productive industries nonetheless in the service sector. Data available on the planningmotive.com.

  6. murray cohen Says:

    I have two leading questions leading to a modest proposal. (1) When a US corporation imports a product it directly or indirectly produced in a foreign country and then adds ten or more times its cost to the selling price of such commodities in the US, is that product counted as an item of trade or as a commodity manufactured in the US? John Smith thinks that the value of such commodities is added to GDP. If I understand him right, then might such commodities account for part of 2015’s “all time high” in manufacturing output? (2) Technological innovations have caused the shedding of many jobs in the US, but hasn’t there been a tendency, not only of the rate of profit to fall since the mid-seventies, but of the rate of investment in new technology? So isn’t it true that job loss since the 70’s might not be wholly attributed to new machinery, but to sending that machinery to low wage countries?–not only China, but India, Indonesia, Mexico, etc.? If 85 % of the world’s (invisible to the experts in the West) industrial workers toil outside the “industrial countries,” how can we say there has been an increase in industrial production in such “industrial countries” without attributing it in some way to the invisible 85%? Sometimes, it seems, economists–not only bourgeois economists–have to be blind.

    In this piece, it’s not always clear to me whether Michael is quoting sources in a positive or negative sense. Also I find the term “trade” ambiguous in the context of the global system of production. (Not to say that it is not a competitive system. That’s why it’s in crisis.) Marx intended that the labor theory of value (as a tool for testing the limits of capitalism as an historical mode of production) had to be applied globally. Nothing could be more necessary today. That’s John Smith’s challenge. Marxists have been moribundly divided for better than half a century. The present crisis and that challenge should unite us.

  7. Wal Buchenberg Says:

    Michael wrote: “So the loss of US manufacturing jobs, as it has been in other advanced capitalist economies, is not due to nasty foreigners fixing trade deals. It is due to the inexorable attempt of American capital to reduce its labour costs through mechanisation or through finding new cheap labour areas overseas to produce.”
    That’s the way it is.
    It is the success of capitalism that makes the productive working class shrink. Subsequently, the capital seeks again expansion possibilities in the capitalist periphery.

    Karl Marx wrote:
    “A country is the richer the smaller its productive population is relatively to the total product; just as for the individual capitalist: the fewer labourers he needs to produce the same surplus, so much the better for him. The country is the richer the smaller the productive population in relation to the unproductive, the quantity of products remaining the same. For the relative smallness of the productive population would be only another way of expressing the relative degree of the productivity of labour. On the one hand it is the tendency of capital to reduce to a dwindling minimum the labour-time necessary for the production of commodities, and therefore also the number of the productive population in relation to the amount of the product. On the other hand, however, it* has the opposite tendency to accumulate, to transform profit into capital, to appropriate the greatest possible quantity of the labour of others. It* strives to reduce the norm of necessary labour, but to employ the greatest possible quantity of productive labour at the given norm.” K. Marx, Theories of Surplus Value, MEW 26.1, 199.

    Also see (with Graphs, but in German):
    http://marx-forum.de/Forum/index.php/Thread/612-Wo-sind-die-Industriearbeitspl%C3%A4tze-hin/?postID=3781#post3781

    Wal

    • murray cohen Says:

      But the unprofitable capital accumulated at the labor-shedding imperial center has been invested in employing the “greatest possible quantity of productive labor” in the “Global South”. This countervailing strategy seems to be no longer working. Why?

  8. ucanbpolitical Says:

    In reply to Murray Cohen. If a manufacturer outsources their production to say China and exits production, they are reclassified by the BEA as a wholesaler. However, if outsourcing is partial, for example final assembly is carried out in the

  9. ucanbpolitical Says:

    USA they remain classified as manufacturers. It depends on what their main source of business is. However, as the bulk of US manufacturing depends on the importation of raw material, semi-process material, components and assemblies, it is true to say that the value added outside the US but realised in the US adds to the output of US manufacturing. So the suspect 2015 figure would have been boosted. The BEA is actually aware of this phenomena and attributes 25% of the productivity growth in US manufacturing to the pricing of imports. One good way of measuring the effect is to look at the trend between the IPI index (Import Price Index) and the PPI which is the producer price index which includes prices realised in the US market and the export market. Since globalisation the PPI has grown significantly faster than the IPI except for a short period at the height of the commodity boom.

    • sartesian Says:

      ” it is true to say that the value added outside the US but realised in the US adds to the output of US manufacturing.”

      This leads us into some interesting issues– how exactly is that value “realised” in the output of US manufacturing, rather than in the purchase of the intermediate by the US manufacturer?

      “he BEA is actually aware of this phenomena and attributes 25% of the productivity growth in US manufacturing to the pricing of imports. One good way of measuring the effect is to look at the trend between the IPI index (Import Price Index) and the PPI which is the producer price index which includes prices realised in the US market and the export market. Since globalisation the PPI has grown significantly faster than the IPI except for a short period at the height of the commodity boom.”

      Another interesting question: how does price impact productivity, when productivity is measured in unit outputs– autos per hours, or ton-miles crew hour?

      How does the cheaper price for automobile seats that are imported from China impact the rate at which any number of seats can be installed in any number of automobiles by workers performing the final assembly?

      What does the IPI variation from the PPI today is different say than the disparity between the price of cotton produced by slaves in the US South, and the price of finished textiles, fabrics, and clothing produced in Manchester, or Massachusetts, in the mid 19th century.

      Which of course gets us into an even more interesting question– where slaves producing surplus value, and if so what does that say about Marx’s insistence that surplus value depends upon “free labor” — the “free” laborer compelled to exchange his/her labor as a commodity, in order to effect, and veil, the wage relation as payment for only the necessary labor-time, ceding the surplus-labor time without compensation to the bourgeoisie?

      Or…how does the importation of intermediate inputs differ today then the importation of rubber from Asia, Latin America, Africa in the 20th century. Is the claim that the value of that rubber was only realized when it was turned into tires sold in the USA or Europe?

      • Wal Buchenberg Says:

        sorry, but Marx never said that surplus value depends upon free labour … Surplus value was’nt the invention of capitalists.

      • sartesian Says:

        Yeah, actually he does say surplus value depends on free labour, several times, in the Grundrisse, and all of Chapter 6 of Volume 1 of Capital.

        A mode of production of, by, and for surplus value does not exist outside of the capitalist mode of production.

        “For the conversion of his money into capital, therefore, the owner of money must meet in the market with the free labourer, free in the double sense, that as a free man he can dispose of his labour-power as his own commodity, and that on the other hand he has no other commodity for sale, is short of everything necessary for the realisation of his labour-power.”

        and further in the chapter:

        “So, too, the economic categories, already discussed by us, bear the stamp of history. Definite historical conditions are necessary that a product may become a commodity. It must not be produced as the immediate means of subsistence of the producer himself. Had we gone further, and inquired under what circumstances all, or even the majority of products take the form of commodities, we should have found that this can only happen with production of a very specific kind, capitalist production. Such an inquiry, however, would have been foreign to the analysis of commodities. Production and circulation of commodities can take place, although the great mass of the objects produced are intended for the immediate requirements of their producers, are not turned into commodities, and consequently social production is not yet by a long way dominated in its length and breadth by exchange-value. The appearance of products as commodities pre-supposes such a development of the social division of labour, that the separation of use-value from exchange-value, a separation which first begins with barter, must already have been completed. But such a degree of development is common to many forms of society, which in other respects present the most varying historical features. On the other hand, if we consider money, its existence implies a definite stage in the exchange of commodities. The particular functions of money which it performs, either as the mere equivalent of commodities, or as means of circulation, or means of payment, as hoard or as universal money, point, according to the extent and relative preponderance of the one function or the other, to very different stages in the process of social production. Yet we know by experience that a circulation of commodities relatively primitive, suffices for the production of all these forms. Otherwise with capital. The historical conditions of its existence are by no means given with the mere circulation of money and commodities. It can spring into life, only when the owner of the means of production and subsistence meets in the market with the free labourer selling his labour-power. And this one historical condition comprises a world’s history. Capital, therefore, announces from its first appearance a new epoch in the process of social production”

        and finally, Marx says:

        “We now know how the value paid by the purchaser to the possessor of this peculiar commodity, labour-power, is determined. The use-value which the former gets in exchange, manifests itself only in the actual utilisation, in the consumption of the labour-power. The money-owner buys everything necessary for this purpose, such as raw material, in the market, and pays for it at its full value. The consumption of labour-power is at one and the same time the production of commodities and of surplus-value. The consumption of labour-power is completed, as in the case of every other commodity, outside the limits of the market or of the sphere of circulation. Accompanied by Mr. Moneybags and by the possessor of labour-power, we therefore take leave for a time of this noisy sphere, where everything takes place on the surface and in view of all men, and follow them both into the hidden abode of production, on whose threshold there stares us in the face “No admittance except on business.” Here we shall see, not only how capital produces, but how capital is produced. We shall at last force the secret of profit making.”

        Chapter 6 just happens to be my favorite chapter in volume 1.

        The mode of production, of by and for surplus value, of by and for commodities as bearers of value is most decidedly dependent upon the exchange with “free labor,” upon the wage system.

      • Wal Buchenberg Says:

        Surplus value is indeed a special, historical form of the surplus product. Surplus product results from surplus labour. The exploitation of surplus labour is not limited to capitalist production.

        “Capital has not invented surplus labour. Wherever a part of society possesses the monopoly of the means of production, the labourer, free or not free, must add to the working-time necessary for his own maintenance an extra working-time in order to produce the means of subsistence for the owners of the means of production, whether this proprietor be the Athenian χαλος γαχαθος [well-to-do man], Etruscan theocrat, civis Romanus [Roman citizen], Norman baron, American slave-owner, Wallachian Boyard, modern landlord or capitalist.” The Capital, Chapter 10. 164

        Wal

  10. murray cohen Says:

    Investors and plantation owners in the American colonies, for instance, were capitalists–merchant/banker capitalists, who were also investing in the nascent industrialization process. Marx did make it clear that much of the primal accumulation of capital for the industrialization of England and Europe came soaked with the blood native and African slaves. Did the physical mass of goods produced by slave labor and their translation at home into expanded value represent comparative advantage of trade between the colony and the home country, or simply theft (of the true value of slave’s product and his or her life)? Is exploitation of unfree (today’s comprador coerced–“super-exploited”?) labor theft? Maybe there’s something to Luxemberg’s argument in this regard and to Samir Amin’s notion of “imperial rent”, based on military/market power. We may not agree, but both are marxists, of course. John Smith finds Samir’s concept “intriguing” but non-economic. But maybe the labor theory of value as a tool for determining the limits of the capitalist mode of production (especially when it comes depend on non-viable labor practices) can help explain “super-exploitation” (rather than denying that it exists) in the neoliberal global economy, and why that system is in crisis.

    • sartesian Says:

      Yes, there exists that argument– that slaveholders functioned as capitalists, and there is the counterargument by just as many that indeed the slaveholders did not function as capitalists, did not make decisions, react, invest as capitalists did in response to rates of return; did not invest in the means of production in the attempt to reduce the cost of production, reduce the proportion of living labor in production, and aggrandize more value.

      Richard Follett in The Sugar Masters argues for slaveholders as capitalists; Charles Post argues against that notion.

      As for plantation owners investing in the nascent industrialization process, I don’t think you mean during the colonial period, since investment in industrialization in the US during that period was almost nil.

      The level of that investment by the plantation owners in that industrialization in the US South after independence was quite modest, compared to the investment being made in the “free labor” North, and not by slaveholders.

      But as I said, it’s a very interesting subject for investigation.

      • murray cohen Says:

        Sartesian, yes, I was referring to trade in the 18th century, but between the colonies and the mother country. For example, trade in the physical product of American slave labor between the plantation owner and his English merchant/banker factor, who, in return, supplied foreign goods (from harpsichords to means of production) and some money–and then exported the mass of slave labor production to England, where it was laundered into “value” (though at a time when wage labor was probably not yet hegemonic in determining value) by placing it directly on the market or milled. I think that the CIA operates similarly with drugs (but not with weapons).

  11. ucanbpolitical Says:

    In reply to Sartesian. Output is measured in value terms and then in physical units. Productivity is first measured in terms of value, generally the value produced in one hour, and only then is it reduced to physical units by means of the implicit price deflator (chained dollars). Here the key is the deflator. Productivity cannot be measured initially in physical units – as use values – because these change over time. Very few commodities retain the same characteristics and where they do they are generally found in the raw (iron ore of a certain grade and moisture) material industries or semi processed such as a specific grade of steel. In Volume 111, part four, pg. 400 Penguin edition, in the section on Commercial Profit, Marx states “The merchant’s sale price is higher than his purchase price not because it is above the total value, but rather because his purchase price is below this total value.” What Marx is demonstrating is that the price mechanism is being used to transfer value from production where it is produced to distribution where it forms the margin between the buying in price and the selling out price. In other words, distributors always buy their commodities at a discount from the producers and it is this discount that forms their margin. I use this section in Capital because it is the most complete exposition of the transfer of value via the price mechanism. Similarly with international trade, US manufacturers (where they are not crooking the books by using tax havens) buy their components at a discount which yields an extra margin in the United States when commodities are sold at their value. This point is crucial. When US consumers buy a car they are paying for it at its full value, the value produced in production itself. Imported parts on the other hand could have been bought at a discount, then the completed car would be sold to the dealer, again at a discount, and it is only the final sale, the event that removes the commodity from production and circulation that all the value is realised in monetary terms (setting aside the movement in prices resulting from the averaging out of the rate of profit).

    In fact, a Chinese University researching this phenomena stated categorically that up to 2008, of the value produced by Chinese manufacturing, only 50% was realised in China with the other 50% benefitting the multi-nationals. This is a classic example of unequal exchange. And of course it will boost US productivity rates measured in value terms while reducing productivity rates in China in a corresponding way.

    • sartesian Says:

      “Output is measured in value terms and then in physical units. Productivity is first measured in terms of value, generally the value produced in one hour, and only then is it reduced to physical units by means of the implicit price deflator (chained dollars). Here the key is the deflator. Productivity cannot be measured initially in physical units – as use values – because these change over time.”

      The bourgeoisie may measure it that way, but not so Marx.

      Of course productivity can, and is measured in physical units, and in fact is initially measured in physical units, in that agricultural production is the “initial” activity, and as Marx points out, requires a certain level of productivity to sustain industrial, or urban, production. A bushel of wheat is a bushel of wheat, and a ton of steel is a ton of steel. Cold rolled steel can be compared to cold rolled steel, and in fact it is the physical identity that allows comparisons in productivity, not the price comparisons as prices are a result of market forces that represent the average socially necessary time of reproduction:

      When and if distinctions are made on value, the too are based on “useful” characteristics, i.e MIPS for semiconductors, not on the exchange value of the semiconductor produced, as the representation of that exchange value, the price, of the semiconductor is all the bourgeoisie see, and may very well be below that of the less efficient, less robust semiconductor, not only in unit, i.e. per MPS, but also in aggregate, as a production price of the aggregate, i.e. the microprocessor itself.

      “The merchant’s sale price is higher than his purchase price not because it is above the total value, but rather because his purchase price is below this total value.” What Marx is demonstrating is that the price mechanism is being used to transfer value from production where it is produced to distribution where it forms the margin between the buying in price and the selling out price. In other words, distributors always buy their commodities at a discount from the producers and it is this discount that forms their margin. I use this section in Capital because it is the most complete exposition of the transfer of value via the price mechanism.”

      The merchant’s price, higher or lower in comparison to production value a)makes no difference to the productivity of labor, which productivity determines, rather is determined by, the cost price, and the price of production. The differential in the price the merchant pays vs. the price the merchant sells makes no difference also to the productivity of labor.

      There is a fundamental problem in arguing that productivity is measured in value per hour– given that Marx’s entire critique is that the value per hour is, more or less, immutable– is a tautology, that the value of one hour’s work is equal to the value of one hour’s work. Marx says in The Philosophy of Poverty something to the effect– “It’s not that one man’s hour is worth the same as another man’s hour, but rather that one man during an hour is worth the same as any other man. Time is everything, man is nothing– he is at the most time’s carcass.”

      Productivity of steel production is measured in hours required per ton of steel; not hours per price of the ton of steel. Hence China, where the workers’ wages are about $3.25 an hour, requiring 30 hours to produce a ton is less productive than steel production at Pusan, South Korea, where it takes an hour; or the US where it takes 1.9 hours per ton, despite the fact that the US worker is paid around $28-$30 per hour (not including benefits), and the worker at Pusan is paid $18 per hour. The value of the hour, whether it be a ton, a half ton, or 70 lbs are equal. The productivity is different and determined by the output.

      Your argument is explicitly that US(or advanced capitalism) must, and must always, buy commodities from less advanced capitalism’s below their values, and below their prices of production, and then “sell up,”– revise prices upwards in the final sale to garner some measure of profit; i.e. to realize the “value” that they didn’t pay to the original producer. You might as well argue that when any processor pays for any input, the processor is paying below value of the intermediate input, and then “tacking” back on the real value of the intermediate input when offering the final product for sale– which doesn’t really help our understanding of the process as the “final producer” is an “intermediate” itself to the sale of the product to the merchant.

      For example, when grain is bought either by production contract or market auction (like in the pits at the CBOT– although haven’t visited the Board of Trade in awhile, so they might not even have pits any longer) as an intermediate input, is the grain bought in all cases, below its value, below its price of production, with the “full value” going to the producer of the bread offered to the merchant? Of course not. Agriculture would collapse if this were the permanent condition.

  12. murray cohen Says:

    Sartesian, you describe value chains within and between nations. No argument here. You’re a Marx scholar, I’m not. I’m an old English/history teacher. But I think you will agree that the comparative advantage between the industrializing states of 19th century Europe and agrarian economies powered the creation of the old colonial system of dependency, which was maintained by force, occupation, etc. The neoliberal, neo-imperial system, while similar is the evolution of something else. Here global corporate consortiums of financiers invest directly and indirectly in industrial production in “emerging countries” (the Global South), but with certain “extraterritorial” privileges that allow them to control every aspect of the mode of production in both directly and indirectly owned operations, even in certain areas of “communist” China, as if production were occurring in the investor country.

    These privileges do not so much reflect the desires of the dominated nations involved, but the abusive market and military power of the investor countries. Isn’t this reminiscent of old colonialism’s gun boat diplomacy? the sort that forced Japan and China to open their doors to “trade” on terms amounting to theft, thus the need of gun boats?

    Today, gun boats are replaced by regional peaceful trade arrangements, enforced by market power and recently suffered, actually occurring horrific military force… reflected in distant aircraft carriers poised to launch weapons of mass destruction. China represents what all the other “emerging” countries of the pacific region face: the treat of market and military force if leaders do sign on the mutually beneficial international treaties that in fact force them to act in comprador style, allowing foreign investors to (extraterritorially) determine the what and how of production, including the wage rates of their working force.

    TTP is so much a trade partnership as a political strategy to control the pacific region’s mode of production, from design, to wage rates, to finished products. Wage rates have been treated as if productivity, even in highly productive plants, were low, requiring more labor than is actually employed (and worked to the point of exhaustion). This maintenance of a false comparative advantage, which imposes arbitrary (not arbitrage) wage rates is still being pushed vigorously by the US (as it will be even under Trump) despite the current crisis. Shouldn’t we adapt marxist analysis to these new conditions? Or do you think that conditions are fundamentally the same as in pre-neoliberal imperialism?

  13. sartesian Says:

    If you look at China, I think it will become clear that “foreign investors” did not determine the wage rates of the labor force; that the wage rates are not “arbitrary” and determined by the MNC’s imposing a lower wage, but rather are rooted in historical conditions.

    Under Deng, the policy of the 4 reforms was quite explicitly a “low wage” policy. Similarly, wage rates in Cambodia and Vietnam are products of the history and the combativeness, and independence of the working class. The initial, and still major, portion of FDI in China was contracted through Taiwan, and Hong Kong, and in the case of the Guangdong, took advantage of the Chinese government’s policy of hokou, which marks migrant labor with inferior legal, and social status.

    We can look at numerous countries, and we’ll find numerous examples of lower wages being the product of national policies, national histories.

    Doesn’t mean the MNC’s don’t take advantage of the differentials, don’t aggrandize surplus value with less, equal, or greater fervor than they do in “advanced countries.” Just means what it means.

    Thank you for the compliment, but I am not a scholar of Marx, or really anything, except maybe railroad operations, which I learned through experience, not academic study

  14. murray cohen Says:

    Thanks for your reply. But my point is also that the present global system is the product of history, that capitalism’s (countervailing) imperial project has evolved, seemingly to its historical limits in its attempt to gain control of the world’s means of production (including labor), yet is unable and not inclined to create a world state, but to maintain the old structure of imperial (national) center (led by the US) and dependent periphery–thus the maintenance of the historically created low wage differential (even where technology is as productive or even more so) at the peripheries. You can’t have it both ways. The neoliberal global project hasn’t led to non-dependent industrialization in the peripheries (because that is not the intention) or wage equalization, but to greater exploitation of labor at both the centers and the peripheries. Meanwhile the rate of profit continues to decline. Neo-liberal globalization’s one positive effect has been the awakening of class consciousness in the youth of both worlds.

    This is my distillation of what I’ve learned from recent readings (particularly John Smith), but also from the knowledge I’ve gained by intruding myself among more knowledgeable people like yourself, who don’t seem to agree with Smith, but who know a lot more economics than I do. I’ve also learned a lot from young black men and women, who stand out as marxists in theorizing conditions here in the belly of the beast.

  15. ucanbpolitical Says:

    Sartesian you make your own argument. The capitalist class does measure productivity primarily in value terms. In a socialist society productivity would be measured in terms of labour time as expressed by the fall in prices. But that is for the future. In a capitalist society it is possible to measure more basic commodities in output per worker hour. You cite steel. However, because commodities are incommensurable it is inadvisable to generalise. This is the field of the neo-liberals who try to use the measure of physical output as a means of resetting the economic speedometer. For example they would contend that GDP cannot account for the trillions of music downloads versus the billions of CDs previously sold. Is the music industry more productive because downloads exceed CDs by a large factor? Yes. Has it expanded economically, no. There has been a physical increase in music being listened to, but economically the value output is somewhat different, because a music download being composed of 0 and 1s is less costly to produce then the plastic, coatings, paper, cardboard, transport, storage etc that went into producing and circulating CDs. Hence while the volume of music has gone up, its economic value has fallen. Profits are based not on volume but on value which is why it has taken the music industry so long to adjust to this transformation in the delivery of music. It is precisely because the volume of certain commodities has soared, enabled by new technology, that the neo-liberals would have us believe the world economy is growing faster than it really is.

    Finally on the question of realised value. Here is the crux 0f the matter. This example is worth considering. Let us take a specific industry. Depending on market conditions, it is the more efficient producers who determine market prices in a downturn compared to the less efficient when the market is on the up. Now in both cases the same quantity of goods may be produced. However the total market prices realised would be less in a downturn than in the upturn, everything else held equal. In the first case, productivity measured in value terms would fall compared to the latter case where it would rise. Total profits would follow the same course, falling in the former and rising in the latter. Productivity however would remain unchanged. In other words we would learn little from the mere physical world as to the state of capitalism.

    More recently business productivity in the US (Third Quarter revised) shot up 3.1% q on q. The only reason this happened is that GDP rose by 3.8%, not because physical productivity suddenly reversed course. But without this restatement in value terms, unit profit of the non-financial industry could not have increased by 18.9% (https://www.bls.gov/news.release/prod2.nr0.htm).

  16. sartesian Says:

    In 2015, the value of international trade decline 14 percent; does that tell us anything about productivity? Of course not.

    Yes I make my own argument, as do you: “More recently business productivity in the US (Third Quarter revised) shot up 3.1% q on q. The only reason this happened is that GDP rose by 3.8%, not because physical productivity suddenly reversed course. But without this restatement in value terms, unit profit of the non-financial industry could not have increased by 18.9% ”

    Physical productivity did not increase; did “value productivity” increase? Did the value per hour of output increase? It seems to me you wind up arguing that because the price of oil has come off its lows of $27 per barrel, and is now around $50 a barrel, “productivity” in the oil industry has improved– which of course has the corollary that when the “value” of oil decline from $115 per barrel, productivity declined.

    And how, if Marx’s analysis is to hold, can a worker produce more value in an hour than an hour’s worth of value? According to Marx, only if the intensity of labor increases. Has that occurred? If so, how do you measure this change in intensity? By value/hour? That’s a circular argument where you use what needs to be proven as the proof.

    We can analyze productivity as output, in physical terms, per hour– which is precisely why the bourgeoisie engage in speed-ups and invest in machinery. More bushels of wheat per unit– worker-hour; More automobiles per worker-hour. The price of the steel used in the production of automobiles, or the price of the pesticide is not involved in the calculation of productivity.

  17. sartesian Says:

    I want to add the fact that I think this is a critical issue for Marx’s critique of capital. And I think there a whole host of issues that need to be explored. For example, when comrade ucanbepolitical states: “In a socialist society productivity would be measured in terms of labour time as expressed by the fall in prices.”– yes and no. In capitalist society productivity is measured in terms of labor time– output per hour, and is expressed by a fall in prices. There’s a big difference between measure and expression.

    And in socialist societ?y productivity would be measured the same, but it would not be expressed in a fall in prices, as price, as a mechanism for distributing, assigning, social labor time would no longer be the determinant, need would be the determinant. “Price”– the expression of value in money terms– disappears as the organization of labor as a commodity, as an exchange value, and exchange value producing is overcome.

    “In a capitalist society it is possible to measure more basic commodities in output per worker hour. You cite steel. However, because commodities are incommensurable it is inadvisable to generalise.”

    First the whole point of capitalist production is that commodities are NOT incommensurable; time– social labor time necessary for reproduction, value, makes all commodities commensurable. Value overcomes the distinctions of use value, which is why and how profit is determined, allocated, distributed. But that’s NOT the issue with productivity. Productivity of corn, steel, semiconductors, automobile, any object of production is measured by its physical output per unit. We are not comparing the productivity in semi-conductor production to the productivity in auto production. To argue that we can’t understand productivity in a specific category because “use values differ” is like, not like is exactly the same, as saying– “we can’t measure the productivity of labor in the auto industry because the auto industry has so many different models, and options to go with those models. Some autos have fuel injection, some have air-conditioning, some have built in wi-fi… etc. etc.

    According to what comrade u proposes, there would be no way to measure productivity in railroads, or any transport industry, because of the different values of the commodities hauled, and not to mention the different types of motive power utilized. Does the productivity of labor change if the train crew is hauling 10,000 tons of high value flat screen TVs in containers 200 miles in 8 hours vs. a train crew hauling 10,000 tons of coal 200 miles in 8 hours? Of course not. Do railroads charge different rates for commodities hauled? Yes. Do those different rates depend on the distance– no, not always. Do they depend on the different volumes? Not always. Do they depend on the different values of the commodities. Yes, often. Does any of that make it impossible to determine productivity of labor ? No. How do we measure that productivity? Ton-miles per crew hour. Yard cars dispatched per crew hour. Elapsed time of freight car dwell in a terminal, etc. etc. etc. Measures of physical movement, of physical output. We look at the “value” mix when we look at costs and rates of return.

  18. flassbeck economics international - Economics and politics - comment and analysis Says:

    […] According to Michael Roberts, these manufacturing jobs were lost in part to efficiency (see here). Manufacturing output in the US was at an all-time high in 2015. Over the past three-and-a-half […]

    • michael roberts Says:

      “Technological change is shifting the distribution of income from labour to capital: according to the Organisation for Economic Cooperation and Development, up to 80% of the decline in labour’s share of national income between 1980 and 2007 was the result of the impact of technology.”

  19. cognord Says:

    Michael, just a minor point: in the following paragraph the link is not to a text by Autor but the same text of Krugman you mention in the previous paragraph. In the beginning I thought it was simply a wrong link, but then I noticed that the quote in the paragraph is also by Krugman and not Autor. 🙂

    “Another study by Autor et al reckons competition from China led to the loss of 985,000 manufacturing jobs between 1999 and 2011. That’s less than a fifth of the absolute loss of manufacturing jobs over that period and a quite small share of the long-term manufacturing decline. “So America’s shift away from manufacturing doesn’t have much to do with trade and even less to do with trade policy.”

  20. Trump e a nova fase do imperialismo – Blog da Boitempo Says:

    […] of innovation. Disponível aqui. [8] Ver ROBERTS, Michael. Trump, trade and technology. Disponível aqui. [9] Ver OCAMPO, José Antonio. Trump and the Latin American economy. Disponível aqui. [10] Ver […]

  21. Trump e a nova fase do imperialismo – Controvérsia Says:

    […] [8] Ver RO­BERTS, Mi­chael. Trump, trade and te­ch­no­logy. Dis­po­nível aqui. […]

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