By Anthony de Jasay
Marxists and most Frenchmen hold that since all value
is produced by labour, all of it should be paid out in wages except the part
taken by the state, a body which by rights ought to belong to the workers
anyway. All private profit is stolen from the working class. It is incumbent on
the state to claw it back from the capitalists.
Class warfare is the mode of clawing back the profit,
through complete success requires actual revolution. For the hard Left, this is
the true aim of class warfare. For the soft Left, well-drilled labour unions in
closed shops squeezing profits by tough collective bargaining are fighting the
good fight. A more formidable arm of class war as practised by the soft Left is
the collective mandate an electoral majority hands to the state to "slice
the national cake" by transfer payments and public goods, so that its
distribution will be more favourable to the working class than the original
distribution intended by those who had arranged the baking of the cake in the
first place.
Class war scenarios drawn from Marxist metaphysics can
neither be verified nor falsified, and arguing about them is not the best of
fun. Disciplined common sense, on the other hand, has conclusions to offer
about the shares of labour and capital in the "cake" that help us understand
the world even if we disagree with them.
It is a truism that if a firm wishes to maximise the
present value of its profits over time, it must so deploy its resources that
the marginal unit of capital it hires and puts to work has the same productivity
as the marginal unit of labour. If it made a mistake and one of the factors it
employed had a higher productivity than the other, it could improve its
position by redeploying its resources and employ more of the more productive
factor while releasing some of the less productive. All firms that survive in a
market with reasonably free entry must at least roughly approximate this
balancing act. The result is a reasonably efficient economic system.
However, auxiliary assumptions are needed to make the
system work properly. Factor productivities must be decreasing in the sense
that if, all other things being equal, more labour is employed, its marginal
product would decline, and so would the return on capital if more of it was
invested. However, the "all other things remaining equal" clause is
never satisfied, so that the decreasing-returns-to-scale proviso serves only
the criterion of logical completeness. Far more important in practice is the
assumption of price flexibility. If an influx of foreign capital depresses the
marginal return yielded by it, but the rate of interest remains rigid and does
not decline, there would be excess supply of capital and some of its stock
would be left idle. Similar disequilibrium would result in the labour market if
the supply of labour increased or the demand for it fell, but wages remained at
a rigid level fixed by the legislator or collective contract.
The Deus ex Machina in this system is the progress of
technology, which may increase the productivity of capital (e.g. data
processing, computerised design) of labour (school teaching aides, ambulatory
surgery) or both in much the same proportion. The labour-saving or
capital-saving bias of technological innovation obviously impacts the
distributive shares, but is not necessarily impacted by them. Taking a very
long-term historical perspective, we might suppose that since the stock of
capital tends to grow faster than the working population, innovation preventing
the return on capital from declining would be good for stability and hence
might be favoured by the innovators, but this idea is perhaps too clever by
half and it is wiser to treat technology as an exogenous variable.
When Workers of the World Unite
The neo-classical theory of factor shares sketched
above makes plain good sense intellectually, and it offers a fairly reassuring
world view. Failing major rigidities, such as fixed wages or regulatory
obstacles to capital market movements, the incentives in the system would seem
to keep it in a balance that undergoes no brutal swings and is efficient at
keeping the available factors at work in the most efficient manner. Neither
capital nor labour has some obvious built-in handicap exposing it to
exploitation by the other.
This suggests that we should expect the distribution of
incomes to be fairly stable, with only moderate ups and downs in over time in
the measure of income inequality. Capital would go on accumulating, raising
corporate profits and personal incomes from ownership and enterprise, but the
accumulation would increase the demand for labour, hence raise incomes from
wages.
However, for the last three decades or so, this has
stubbornly failed to happen. The return on capital tended to rise, profits grew
with little interruption and inequality of personal incomes expanded
spectacularly. Unskilled and semi-skilled wages in the developed economies
stagnated.
Opinion that was formerly reconciled to the
"Washington consensus" has now become bitterly hostile to it,
deciding that capitalism was intrinsically unfair. There is probably no
intellectually respectable way to give a clear meaning to the notion of
fairness, for, unlike justice, it has no clear rules which define it.
Nevertheless, people of good will and good sense will have notions of rough
justice, rough equalities and a rough sort of "Buggins's turn" (1) in
life's ups and downs when they mean that an outcome is fair. By that standard,
the sharp divergence of wages and profits in the recent past is at worst not
unfair. At best, it should be welcomed as a giant advance against world misery,
hunger and hopelessness.
Over this very inegalitarian period, half a billion
breadwinners in China, Vietnam, Thailand, Indonesia and the Indian subcontinent
have migrated from rural under-employment and near-hunger to urban employment
and a somewhat more hopeful future. They got their well-deserved Buggins's
turn. As long as the pool of Asian rural underemployed was not at least partly
drained, the wages of the European and American semi-skilled could not rise in
response to capital accumulation all over the world. Globalisation made sure of
that. For the last few years, the pool of the Asian labour reserve being now
partly drained, wages in that region have taken off, rising about 10 per cent
p.a. over the inflation rate. It must now soon be Buggins's turn for the
European and American semi-skilled.
It is as if the workers of the world had united to
achieve equality among them, with the poorest uplifted and the better off
pausing to wait for the poorest to catch up with them. Meanwhile, the lucky
rich served to bring about the capital accumulation which made the whole
process possible. Their easy rise is now probably also drawing to a less auspicious
close.
How Judo Lets the Weak Defeat the Strong
In the customary mode of class war, organised labour
wrestles with capitalist employers by collective bargaining aided by the odd
strike or work-to-rule as well as by using its electoral weight to bend policy
so that it should redistribute income from profits and the rich towards wages
and the poor. Such wrestling is the daily fare of both business and politics in
the developed world, and it is normally successful to some extent. Diverting
income from corporations and the well-to-do who save much, to wage-earners and
the needy who save little, reduces the rate at which the capital stock is
increasing and hence also the rate at which the demand for labour increases,
wages rise and jobs are created. For a small though immediate victory, labour
and the soft Left trade away the far greater long-run winning trend that would
carry them along to great heights if they gave up the old-fashioned wrestling
for crumbs, and yielded in judo fashion to the force of the adversary, and
allowed unfettered capital accumulation to curb the return on capital and lift
the income of the labour it seeks to use.
The unconsciously judo-like tactics of the South
Koreans and of course the Japanese who started the practice by working merrily
on while they were officially on strike, achieved in two generations a level
well above the highest ambitions of the average European wage earner.
Standard economic history teaches that labour during
the Industrial Revolution rose from abject misery and subjection by organising
and resisting exploitation. It is more plausible to conclude that labour rose
from misery thanks to being too weak to be able to depress high profitability
and hence the rapid accumulation of capital. The judo fighter yields to his
stronger opponent by calculating design. Labour in 19th century Europe and 21st
century Asia yielded to capital, not by design, but by its intrinsic weakness.
Yet the result is much the same. One wonders whether the clamour for social
justice can be powerful enough to undo such a slow but benign outcome of the
class war.
Footnotes
(1). This is a British expression which means that the next
person in line for the task is the person who has been waiting the longest. It
is thus a way of allocating resources based on seniority rather than merit.
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