As in the classic Prisoner’s Dilemma, retailers could “cooperate” with one another—paying higher wages and enjoying higher sales—but they don’t. Instead, they “defect”—and, as a result, pay low wages and undermine consumer spending for all retailers, including themselves.*
That’s one way of interpreting the new report by the Center for American Progress [pdf]:
While many of these companies’ lobbyists and trade associations continue to pro- mote a low-wage agenda, their 10-K statements reveal how low consumer spend- ing levels undermine their stock prices. In fact, 88 percent of top retailers explicitly cite weak consumer spending as a risk factor.
That retailers depend on consumer spending is not a revelation, but that many retailers see flat or declining incomes as a risk factor is: 68 percent of companies point to flat or falling disposable incomes as a risk. Sixty-four percent of these companies that filed 10-Ks in 2006 cited incomes as a risk factor in their most recent 10-K, compared to just 32 percent in 2006.
Joan Robinson—who should have won the Nobel Prize in Economics but didn’t (because, of course, she was a non-neoclassical, woman economist) and can’t (because she’s dead)—understood this “essential paradox of capitalism”:
Each entrepreneur individually gains from a low real wage in terms of his own product, but all suffer from the limited market for commodities which a low real-wage rate entails.
And, of course, Old Nick before her:
Every capitalist knows this about his worker, that he does not relate to him as producer to consumer, and [he therefore] wishes to restrict his consumption, i.e. his ability to exchange, his wage, as much as possible. Of course he would like the workers of other capitalists to be the greatest consumers possible of his own commodity. But the relation of every capitalist to his own workers is the relation as such of capital and labour, the essential relation. But this is just how the illusion arises — true for the individual capitalist as distinct from all the others — that apart from his workers the whole remaining working class confronts him as consumer and participant in exchange, as money-spender, and not as worker.
*In the old days, when I taught Principles of Economics, I used to illustrate the Prisoner’s Dilemma with Puccini’s opera Tosca. You know: Scarpia kills Cavaradossi, Tosca in turn kills Scarpia, and then Tosca kills herself.