Posts Tagged ‘capitalism’

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The goal of mainstream economists is to get everybody to work. As a result, they celebrate capitalism for creating full employment—and worry that capitalism will falter if not enough people are working.

The utopian premise and promise of mainstream economic theory are that capitalism generates an efficient allocation of resources, including labor. Thus, underlying all mainstream economic models is a labor market characterized by full employment.

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Thus, for example, in a typical mainstream macroeconomic model, an equilibrium wage rate in the the labor market (Wf, in the lower left quadrant) is characterized by full employment (the supply of and demand for labor are equal, at Lf), which in turn generates a level of full-employment output (Yf, via the production function, in the lower right quadrant) and a corresponding level of prices (P0, in the upper quadrants). If the money wage is flexible it is possible to ignore the top left quadrant, because, in that case, the equilibrium real wage, employment and output are Wf, Lf and Yf, respectively, whatever the price level. With flexible money wages, the aggregate supply curve is independent of the price level and is represented by YFYF.

That’s the neoclassical version of the story. The Keynesian alternative is that the aggregate supply curve is relatively elastic below full employment and the wage rate is fixed by institutions, and therefore is not perfectly flexible. In such a case, aggregate demand determines the level of output, which will normally fall below the full-employment level.

And so we have the longstanding argument between the two wings of mainstream economics—between the invisible hand of flexible wages and the visible hand of government spending. But, equally important, what the two theories of macroeconomics have in common is the ultimate goal: full employment. In other words, both groups of economists presume that the aim of capitalism is to generate full employment and that, with the appropriate policies—free markets for the neoclassicals, government intervention for the Keynesians—capitalism is capable of putting everyone to work.

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But the argument also goes in the opposite direction: capitalism works best when everyone is working. That’s because capitalist growth (e.g., in terms of Gross Domestic Product per capita, the green line in the chart, measured on the left) is predicated on the growth of the labor force (the the red line, measured on the right).

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Mainstream economists also argue that a low work rate is an important cause of low incomes and high poverty. They argue that, when considering different policy interventions for this population—including improving educational attainment, raising the minimum wage, and increasing the number of two-earner families—the most beneficial intervention for improving incomes is to assume that all household heads work full-time.

Finally, mainstream economists argue that, in addition to increasing incomes and decreasing poverty, work has an additional benefit: it gives people dignity and a sense of self-worth. The idea, as articulated for example by Brad DeLong, is that having a job gives workers an honorable place in society, which presumably they are deprived of if they receive some kind of government assistance—whether in the form of payments from one or another anti-poverty program or a universal basic income. “Just giving people money” (according to Eduardo Porter) disrupts the incentive to work and undermines the “social, psychological, and economic anchor” associated with having a job.

That’s why there’s such an intense debate these days over the participation rate of U.S. workers. Even though the unemployment rate has fallen to historically low levels (and now stands at 3.8 percent), the lack of participation—whether measured in terms of the labor force participation rate (the blue line in the chart) or the employment-population ratio (the red line)—remains much lower than it was a couple of decades ago.* According to mainstream economists, that’s why rates of growth in output and incomes have slowed. There simply aren’t enough people working.

Once again, there’s an ongoing discussion among mainstream economists about the causes of that decline and what to do about it. More conservative mainstream economists tend to focus on the supply side of the labor market and the unwillingness of workers to make themselves available—mostly because they’re benefiting from some part of the social safety net (such as disability insurance, welfare, or government health insurance). Liberal mainstream economists also worry about the supply side (especially, for example, when it comes to women, who might not be able to work because they don’t have adequate childcare) but put more emphasis on the demand side (for example, the elimination of specific kinds of jobs based on international trade, automation, or the effects of economic downturns). Underlying this debate is a shared presumption that more people working will be better for them and for the economy as a whole.

Even portions of the Left accept the idea that the goal is to move toward more work. Thus, for example, both modern monetary theorists and Bernie Sanders argue in favor of a government job guarantee. The idea is that, if private employers can’t or won’t make the decisions to hire workers and create full employment, then the government needs to step in, as the “employer of last resort.” Again, the presumption—shared with those in both wings of mainstream economics—is that the goal of the current economic system and appropriate economic policy is get more workers to work more.

The utopianism of full employment is so entrenched, as a seemingly uncontested common sense, it’s difficult to imagine a different utopian horizon. But there is one, which emerges from at least three different theoretical and political traditions.

In the Marxian tradition, more work also means more surplus labor, which benefits all those who manage to get a cut of the surplus—but not workers themselves, who fall increasingly behind their employers and others in the small group at the top. That’s because, as employment increases, more workers are performing both necessary and surplus labor. Therefore, even assuming the rate of surplus extraction remains constant, the total amount of surplus created by workers increases. But, of course, the rate itself often increases—for example, as a result of competition among capitalists, who find ways of increasing productivity, which tends to lower the amount they have to pay to hire their workers (as I explain in more detail here). So, what appears to be an unalloyed good in the mainstream tradition—more jobs and more workers—is an economic and social disaster from a Marxian perspective. More workers produce more surplus, which is used to create a growing gap between those at the top and everyone else.

Then there’s the broader socialist tradition, which attacked the capitalist work ethic and claimed “The Right to Be Lazy.” Here’s Paul LaFargue back in 1883:

Capitalist ethics, a pitiful parody on Christian ethics, strikes with its anathema the flesh of the laborer; its ideal is to reduce the producer to the smallest number of needs, to suppress his joys and his passions and to condemn him to play the part of a machine turning out work without respite and without thanks.

And LaFargue criticized both economists (who “preach to us the Malthusian theory, the religion of abstinence and the dogma of work”) and workers themselves (who invited the “miseries of compulsory work and the tortures of hunger” and need instead to forge a brazen law forbidding any man to work more than three hours a day, the earth, the old earth, trembling with joy would feel a new universe leaping within her”).

Today, in the United States and around the world, the capitalist work ethic still prevails.

Workers are exhorted to search for or keep their jobs, even as wage increases fall far short of productivity growth, inequality (already obscene) continues to rise, new forms of automation threaten to displace or destroy a wage range of occupations, unions and other types of worker representation have been undermined, and digital work increasingly permeates workers’ leisure hours.

The world of work, already satirized by LaFargue and others in the nineteenth century, clearly no longer works.

Not surprisingly, the idea of a world without work has returned. According to Andy Beckett, a new generation of utopian academics and activists are imagining a “post-work” future.

Post-work may be a rather grey and academic-sounding phrase, but it offers enormous, alluring promises: that life with much less work, or no work at all, would be calmer, more equal, more communal, more pleasurable, more thoughtful, more politically engaged, more fulfilled – in short, that much of human experience would be transformed.

To many people, this will probably sound outlandish, foolishly optimistic – and quite possibly immoral. But the post-workists insist they are the realists now. “Either automation or the environment, or both, will force the way society thinks about work to change,” says David Frayne, a radical young Welsh academic whose 2015 book The Refusal of Work is one of the most persuasive post-work volumes. “So are we the utopians? Or are the utopians the people who think work is going to carry on as it is?”

I’m willing to keep the utopian label for the post-work thinkers precisely because they criticize the world of work—as neither natural nor particularly old—and extend that critique to the dictatorial powers and assumptions of modern employers, thus opening a path to consider other ways of organizing the world of work. Most importantly, post-work thinking creates the possibility of criticizing the labor involved in exploitation and thus of creating the conditions whereby workers no longer need to succumb to or adhere to the distinction between necessary and surplus labor.

In this sense, the folks working toward a post-work future are the contemporary equivalent of the “communist physiologists, hygienists and economists” LaFargue hoped would be able to

convince the proletariat that the ethics inoculated into it is wicked, that the unbridled work to which it has given itself up for the last hundred years is the most terrible scourge that has ever struck humanity, that work will become a mere condiment to the pleasures of idleness, a beneficial exercise to the human organism, a passion useful to the social organism only when wisely regulated and limited to a maximum of three hours a day; this is an arduous task beyond my strength.

And there’s a third tradition, one that directly contests the idea that participating in wage-labor is intrinsically dignified.

According to Friedrich Nietzsche (in his 1871 preface to an unwritten book, “The Greek State”), the dignity of labor was invented as one of the “needy products of slavedom hiding itself from itself.” That’s because, in Nietzsche’s view (following the Greeks), labor is only a “painful means” for existence and existence (as against art) has no value in itself. Therefore, “labour is a disgrace.”

Accordingly we must accept this cruel sounding truth, that slavery is of the essence of Culture; a truth of course, which leaves no doubt as to the absolute value of Existence.  This truth is the vulture, that gnaws at the liver of the Promethean promoter of Culture.  The misery of toiling men must still increase in order to make the production of the world of art possible to a small number of Olympian men.

And if slaves—or, today, wage-workers—no longer believe in the “dignity of labour,” it falls to the likes of both conservatives and liberals to ignore the “disgraced disgrace” of labor and create the necessary “conceptual hallucinations.” And then, on that basis, to suggest the appropriate government policies such that the “enormous majority [will], in the service of a minority be slavishly subjected to life’s struggle, to a greater degree than their own wants necessitate.”

Nietzsche believed that, in the modern world, the so-called dignity of labor was one of the “transparent lies recognizable to every one of deeper insight.” Apparently, neither wing of mainstream economists (nor, for that matter, many today on the liberal-left) has been able to formulate or sustain such insight.

Contesting the utopianism of full employment with a different utopian horizon creates the possibility of imagining and creating a different world—in which work acquires different meanings, in which the distinction between necessary and surplus is redefined and perhaps erased, and for the first time in modern history workers are no longer forced to have the freedom to sell their ability to work to someone else and achieve the right to be lazy.

 

*The Bureau of Labor Statistics calculates the labor force participation rate as the share of the 16-and-over civilian noninstitutional population either working or willing to work. Simply put, it is the portion of the population that is currently employed or looking for work. It differs from both the unemployment rate (the number of unemployed divided by the civilian labor force) and the employment-population ratio (the ratio of total civilian employment to the 16-and-over civilian noninstitutional population).

 

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Special mention

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Block chain network concept on technology background

Forget Bitcoin. It’s the underlying technology, blockchain, that is generating the most excitement. Even utopia!

Bitcoin is a digital currency that was invented in 2009 by a person (or group) who called himself Satoshi Nakamoto. His stated goal was to create “a new electronic cash system” that was “completely decentralized with no server or central authority.” After cultivating the concept and technology, in 2011, Nakamoto turned over the source code and domains to others in the bitcoin community, and subsequently vanished.

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While Bitcoin (and other so-called cryptocurrencies, such as Ethereum, Ripple, and the other 1500 or so other such currencies) have generated a great deal of media attention (for their novelty, their ability to permit transactions beyond government surveillance and control, and their wild gyrations in price), it’s blockchain, the technology behind Bitcoin, that carries the utopian promise of remaking the economy and society.

At its most basic, blockchain provides a decentralized database, or “distributed digital ledger,” of transactions that everyone on the network can see. This network is essentially a chain of computers that must all approve an exchange before it can be verified and recorded.* The technology can work for almost every type of transaction involving exchange-value, including money, goods, and property. It can also serve as the basis for a variety of other functions, from distributed cloud storage and the recording of property titles to authenticated voting and decentralized social media platforms.

For some (such as Brendan Markey-Towler), blockchain technology makes it possible not only to envision, but to establish a viable pathway toward, a utopian alternative to contemporary society.

On the face of it a mundane and boring technology for bookkeeping, blockchain is actually revolutionary because it makes the anarchist utopia a more realisable dream than has ever before been possible. At the very least it provides the strongest challenge ever posed to the monopoly of the state over the promulgation, formation, keeping and verification of institutions and the public record. The purpose of this essay is to investigate the conditions under which this might occur, and the dynamics of a society organised using blockchain technologies.

According to Markey-Towler, blockchain can serve as the basis for organizing an anarchist utopia—”a society which is composed of groups formed entirely by mutual association and absent violence and coercion.” The idea is that the keeping of verifiable records via blockchain technology allows for the creation of a public record that is kept by everyone and updated by collective consent, which means there is no nexus of power (such as the state or monopoly corporations) that can be exercised to corrupt or use the public record as a tool of extortion.** Even more, the existence of blockchain technology makes it possible to exit from existing economic and social relations and to practice, if only in a selected domain, a different way of organizing economic and social transactions. Thus, it permits a “sort of competition” for adherents between the two systems—one organized in and by the state, the other via decentralized distributed ledgers—and creates the possibility for individuals to choose the set of institutions associated with the alternative, blockchain technology.

I have no interest here in exploring either the feasibility or desirability of such a blockchain utopia (although I have elsewhere, e.g., here and here). My focus for the moment is otherwise—on the fact that the claims about blockchain from the latest example of a long series of “technological utopianisms.”

Many will remember this 2012 iPhone commercial claiming the device is the most used camera in the world. Light piano music twinkles and images of people living their best lives flit past. It is utopic desire, crystallized: the ad says that the gadget will make us happy, and that, through its lens, we’ll all evolve into a better version of ourselves. Facebook (like other social media) promised to give “people the power to share and make the world more open and connected.” And there’s Uber, which pledges “to make transportation safer and more accessible, helping people order food quickly and affordably, reducing congestion in cities by getting more people into fewer cars, and creating opportunities for people to work on their own terms.”

Many will recognize these as pledges that technology will usher in the new utopian society. But, as Howard P. Segal reminds us,

few if any of the high-tech zealots of our own day have even considered the possibility that, far from being original, their crusades fit squarely within a rich Western tradition of technological utopianism. It is not likely that very many of them realize how old-fashioned they really are when celebrating technology’s prospects for transforming the nation and, in due course, the world.***

They are merely the latest in a long line—starting with the late-sixteenth- and early-seventeenth-century Pansophists (such as Tomasso Campanella, Johann Valentin Andreae, and Francis Bacon) through the utopian socialists of the early nineteenth century (especially Henri de Saint-Simon) through the numerous technological utopians of the late-nineteenth- and early-twentieth centuries (including Edward Bellamy, Henry Olerich, Edgar Chambliss)—of prophets of progress and the possibility of achieving utopia through the introduction and expansion of new technologies.

Technological utopianism, as I am using it here, refers to one or more of the following three claims:

  1. Technology is the means for creating a perfect society.
  2. The perfect society itself is modeled on technology.
  3. The perfect society is one that promotes the development of new, better technologies.

Clearly, Markey-Towler’s enthusiastic claims for blockchain technology meets the definition. So, as it turns out, does contemporary mainstream economics.

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Mainstream economists treat technological innovation as the sine qua non of economic and social progress—the key to economic growth and the achievement of global prosperity. It is introduced in the production function as y, the “recipe,” whereby capital (K) and labor (L) can be combined to produce output (Y). Thus, even without changes in the amount of capital and labor, output will be increased as new technologies are introduced. Thus, when they move from an individual firm’s production function to economy-wide economic growth, mainstream economists claim that the key is the increase in productivity due to technological change, which is generally referred to as the “Solow residual” (named after Nobel laureate Robert Solow).****

The mainstream argument is that the level of production and the rate of economic growth can be increased by the introduction of new technologies, which lead to higher levels of productivity. More goods and services are thus made available to satisfy human wants, thus solving the problem of scarcity.*****

Moreover, mainstream economists claim, an economic system based on free markets is the best way of encouraging the development and application of new technologies. At a microeconomic level, profit-maximizing firms have an incentive choose the best, more efficient technologies, for themselves and for the economy as a whole. And free international trade is the best way of increasing the pool of research and development experiments, from which the best technology is chosen. Thus, technology trade increases national income in each country and raises the total gains from trade.

Contemporary mainstream economics thus combines market utopianism with technological utopianism.

As I see it, the biggest problem with technological utopianism is that it takes politics out of the equation—whether in imagining solutions to economic and social problems or envisioning the role of technology in a radically different kind of economy and society. Technology thus becomes a substitute for politics. As Aleszu Bajak has recently explained with respect to finding a solution to climate change,

Relying on a technological fix that’s just over the horizon avoids the mountain moving required to wean ourselves off fossil fuels, bring hundreds of countries into agreement on how to limit and clean up emissions, and alter the consumption habits of an entire civilization. Those are systemic complexities ingrained in our economies and cultures. Propping up glaciers to limit sea level rise, sprinkling iron dust into the oceans to encourage plankton growth to absorb carbon, or spraying the skies to reflect the sun’s heat just seems simpler.

Much the same can be said of obscene inequalities in the distribution of income and wealth, the “diseases of despair” that now afflict a large portion of the U.S. population, or the prospect that new forms of automation will eliminate jobs and make workers redundant. In each case, a technological fix is promised—tax-rate changes for inequality, the expansion of healthcare insurance for increasing levels of addiction, a universal basic income for labor-substituting robots—when the problem itself is political, not technical.

And that means the solution has to be political—organizing people to criticize the existing set of institutions, in order to imagine and create new ways of organizing the economy and society. New technologies may even have a role to play in enabling people to see such a “virtual reality.”

Tackling problems as deeply ingrained as the ones humanity faces right now will require facing a question that technology alone cannot address: are we willing to band together to criticize and change the existing set of economic and social institutions?

 

*To carry out a transaction a party needs two things: a wallet (public key) and a private key. A wallet is a string of digits and letters, also called a public key. It is an address that appears each time a transaction is done. The private key is a string of random digits that should be kept in secret. When someone enables a transaction it is signed with a private key, which is only visible to a sender. Then a network of nodes carries that transaction making sure that it is valid. Once it confirms its validity the transaction is put into a block where, because it has been “hashed,” it is virtually impossible to change without being detected.

**Technically, blockchain fulfills three requirements: (a) it guarantees a certain degree of reciprocity and security with respect to exchange and property; (b) it is sufficiently easy to interact with and to keep records; and (c) it permits a certain degree of freedom to use one’s property, that is, it is secure from theft, corruption, and manipulation.

***Howard P. Segal, Technology and Utopia (American Historical Association, 2006), p. 66.

****Solow (1957) started with a neoclassical production function where Yt = At•F(Kt, Lt), where Yt is aggregate output in time period t, Kt is the stock of physical capital, Lt is the labor force and At represents productivity growth due to technology. Solow then estimated the variables for the U.S. economy for the period 1909-49, where output per labor hour approximately doubled. According to his estimates, about one-eighth of the increment in labor productivity could be attributed to increased capital per person hour, and the remaining seven-eighths to the residual.

*****This is one of the reasons why Robert Gordon’s work on the slowing-down of U.S. productivity growth has been met with such concern.

global wealth

The premise and promise of capitalism, going back to Adam Smith, have been that global wealth would increase and serve as a benefit to all of humanity.* But the experience of recent decades has challenged those claims: while global wealth has indeed grown, most of the increase has been captured by a small group at the top. The result is that an obscenely unequal distribution of the world’s wealth has become even more unequal—and, if business as usual continues, it will turn out to be even more grotesquely unequal in the decades ahead.

The alarm was most recently sounded by Michael Savage, in the Guardian, who cited a projection produced by the House of Commons library to the effect that, if trends seen since the 2008 financial crash were to continue, then the top 1% will hold 64% of the world’s wealth by 2030.”

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I finally managed to track down that report, which was commissioned by MP Liam Byrne, who is the chair of the All-Party Parliamentary Group on Inclusive Growth. It relies on data compiled by Credit Suisse and a projection assuming that total wealth grows at the same rates as during the period 2008-17.

The problem, of course, is global wealth is notoriously difficult to calculate—for both empirical and theoretical reasons—and Credit Suisse doesn’t reveal its methodology.

That’s why the work of the World Inequality Lab is so important.** They’re doing the painstaking work of calculating the wealth that has been generated by global capitalism and how its ownership is distributed.

Thus far, they have reasonably good data for a selection of nations: China, Europe (represented by three countries, France, Spain, and the United Kingdom), and the United States. Those are the numbers illustrated in the chart at the top of this post (with the vertical green line, at 2015, separating past trends from future projections). What they find is that

At the global level represented by China, Europe, and the United States), wealth is substantially more concentrated than income: the top 10% owns more than 70% of the total wealth. The top 1% wealthiest individuals alone own 33% of total wealth in 2017. This figure is up from 28% in 1980. The bottom of the population, on the other hand, owns almost no wealth over the entire period (less than 2%).

The share owned by the top 1 percent is less than reported by Byrne but it’s still an one-third of global wealth. (The share for the top 1 percent in the United States is even higher: an astounding 41.8 percent in 2012.)

But the projection looking forward is similarly dramatic: according to the World Inequality Lab, if present trends continue the share of each of the top groups—the top 1 percent, the top 0.1 percent, and the top 0.01 percent—would growth by one percentage point every five years. What that means is that, by 2050, the share of each group would increase dramatically. In particular, the share owned by the top 0.1 percent would eventually match that of the declining middle group—at a quarter of global wealth.

What we’ve been seeing in recent decades is that an unequal distribution of wealth leads to even more inequality, since wealth inequality is amplified as wealth is concentrated in the hands of a small group at the top. First, past wealth is capitalized at a faster pace, since the rate of return on wealth is faster than the rate of growth of the economy. Moreover, this effect is reinforced by the fact that rates of return tend to increase with the level of wealth: the rates of return available to large financial portfolios are usually much higher than those open to small bank deposits and the other savings vehicles available to everyone else.

None of this is new. Those in the small group at the top have long been able to put distance between themselves and everyone else precisely because they’ve been able to capture the surplus and then convert their share of the surplus into ownership of wealth. And the returns on their wealth allow them to capture even more of the surplus produced within global capitalism.

In short, unless radical economic changes are made within nations, the unequal distribution of global wealth created by contemporary capitalism is both the premise and promise of an even more unequal distribution of wealth in the decades to come.

 

*To be clear, the “wealth of nations” that Smith referred to was current production or, as it is currently measured, Gross Domestic Product—the “immense accumulation of commodities” produced and exchanged in a country’s economy over a particular period of time. Mainstream economists (such as Robert Barro) often claim that inequality in global capitalism is decreasing, because of “convergence,” that is, growth rates in developing countries of the Global South are faster than in the developed North and the gap in GDP per capita is closing. Today, wealth refers to the ownership of assets, both financial (stocks, bonds, etc.) and nonfinancial (especially housing)—as against income (flows of value associated with either doing or owning) or sums of transactions (which is what is captured in GDP).

**The other major sources of information on global wealth are Forbes (which publishes global rankings on the world’s billionaires) and the French business consulting company Capgemini (which issues an annual World Wealth Report focused on the wealth of global High Net Worth Individuals).

powmarx2

First there was the Great Gatsby curve. Then there was the Proust index. Now, thanks to Neil Irwin, we have the Marx ratio.

Each, in their different way, attempts to capture the ravages of contemporary capitalism. But the Marx ratio is a bit different. It was published in the New York Times. Its aim is to capture one of the underlying determinants of the obscene levels of inequality in the United States today—not class mobility or the number of years of national income growth lost to the global financial crash. And, of course, it takes its name from that ruthless nineteenth-century critic of mainstream economics and capitalism itself.

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Now, to be clear, there are lots of ratios that can be found in Marx’s critique of political economy—for example, the rate of exploitation, the intensity of labor, the technical productivity of labor, the exchange-value per unit use-value, and the value rate of profit (as illustrated above in a fragment from one of my class handouts)—and the ratio Irwin presents is not one of them.

But that doesn’t make Irwin’s ratio wrong, or uninteresting. On the contrary.

Basically, what Irwin has done is take the data from corporate financial reports (net income and the number of employees) and from a minor provision of the Dodd-Frank Act, which requires that publicly traded corporations reveal the gap between what they pay their CEOs and their average worker (and thus they need to report median worker pay) and calculated a number:

The Marx Ratio, as we’re calling it, captures the relationship between a company’s profits — the return to capital, on a per-employee basis — and how much its median employee is compensated, a rough proxy for the return to labor.

Thus, for example, Wells Fargo, which reported $22.2 billion in net income in 2017, with 262,700 employees and median worker pay of $60,446, had a Marx ratio of 1.40. Similarly, we have the ratio for other corporations—from the relatively small real estate investment trust Duke Realty (37.7) to independent energy company Hess (-12.2).

Irwin is clear: notwithstanding the limitations in the data, “companies with high Marx Ratios offer particularly strong rewards to their shareholders relative to workers.”* But that doesn’t mean, contra Irwin, that “Numbers below 1 signal the reverse: a more favorable return to labor.” Any positive number indicates that, after paying all expenses (including workers’ wages, taxes, interest on debt, deductions for depreciation, and CEO salaries), the net income or profit per employee is positive.

In fact, with a little algebraic manipulation, Irwin’s Marx ratio turns out to look a lot like Marx’s rate of exploitation.**

They’re not the same, of course. First, because corporate net income leaves out many of the distributions of surplus-value corporate boards of directors make—such as interest payments, taxes, and managers’ salaries—and the number of employees refers to all workers, not just nonmanagerial workers. Second, because the Irwin ratio is calculated for all publicly traded companies and therefore makes no distinction between finance, real-estate, insurance and companies that actually produce goods and services. From a Marxian perspective, the former capture surplus-value that is produced and appropriated and distributed elsewhere in the economy (both nationally and globally).

So, the Marx ratio is not Marx’s ratio.

But Irwin’s Marx ratio does tell us a great deal about how wildly profitable American corporations are, especially in comparison to how little they pay their employees—to the tune of 3, 4, 30 times what the average worker makes. And that’s one of the principal causes of the obscene and growing levels of inequality we’ve seen in the United States for decades now.

I, for one, would love to see the Marx ratio reported in the financial news on a regular basis. Alongside the ratio of CEO to average worker pay. And, even better, Marx’s own indicator of capitalist class injustice, the rate of exploitation.

 

*The data are a bit of a problem, especially because median worker pay is based on self-reporting:

The denominator is the compensation to the median employee, as disclosed in the company’s proxy statement, which can create distortions in representing rank-and-file employees.

Companies also have some degree of flexibility in how they calculate median pay, so comparisons are not necessarily apples-to-apples. For example, they may choose to use statistical sampling instead of actual payroll records, and may exclude non-U.S. employees depending on privacy rules in overseas markets.

A better number for the idea we’re really trying to get at would be average compensation for nonexecutive employees, but companies aren’t required to report that publicly.

**Mathematically, Irwin’s Marx ratio is (NI/L)/(W/L), which turns out to be NI/W, where NI is net income, L is the number of employees, and W is the wage bill (calculated by multiplying median worker pay by the number of employees). Marx’s rate of exploitation is S/V, where S is the amount of surplus-value and V is the value of labor power.

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Austin O’Brien is a J.D. Candidate (Class of 2019) at the Fordham University School of Law and a former student of mine at the University of Notre Dame. He sent the following response to my recent piece on “utopia and markets,” which I am pleased to publish here as a guest post.

Dear Professor Ruccio,

I have been enjoying your recent blog posts on various dimensions of utopia. The one about “utopia and markets” struck a particular chord with me as I had my Corporations exam last Tuesday. Throughout the course, I noticed that corporate law itself has certain utopian elements. The very notion of a fiduciary duty to the corporation and shareholders (and creditors, when the business is on the brink of insolvency or is insolvent) enshrines the notion that an officer or director should maximize shareholder value, that is, the surplus to which they have access through their holdings and dividends. But, what I find to be most interesting is the flipside of this: it is not only the case that officers/directors should maximize value, but also that they are obliged to do so and, when a shareholder prevails in demonstrating that this duty has been breached, the breaching party must be punished. I think this counters the notion that profit-maximizing behavior is “natural.” The utopia that these duties try to build is one where officer/directors maximize (surplus) value at the behest of those who have claims on the surplus. So, the maintenance of capitalism takes extraordinary (legal) efforts just to compel officers/directors to act in the manner prescribed (as opposed to merely discovered or described) by neoclassical theory. Thus, the hegemonic economic utopian project is an active project that makes legal recourse an option when officer/directors take actions that do not allow investors to benefit from the exploitation that is at the heart of the firm’s consumption of labor power.

Let me try to explain what I mean. Corporate law is premised on the notion that it governs voluntary exchanges among sophisticated parties who seek to maximize profits.  Those individuals subject to corporate law are none other than the economic actors that fit neoclassical economists’ understanding of human nature: rational decision-makers who maximize utility or profits under conditions of scarcity. Well, that is at least the set of individuals corporate law deems itself to oversee. Perhaps it is more likely that this type of actor is the type of actor that corporate law intends to create. This rational actor is the dream of corporate law. Indeed, perhaps this homo economicus is proscribed by corporate law. In fact, if corporate law is largely in place to assist in profit-maximization, then this is the type of actor it must demand so that its project may succeed

The very heart of corporate governance lays bare corporate law’s project. At least with regard to the enforcement of particular norms among corporate officers and directors, the notion of a fiduciary duty is central to corporate law. Fiduciary duties arise in many contexts. In corporate law specifically, a fiduciary duty typically refers to the duty owed by a corporate officer or director to the corporation’s shareholders. The duty of care (i.e., the duty to make informed business decisions) and duty of loyalty (i.e., the duty to not use their position as officer or director to further their private interests) are hallmark examples of such a fiduciary duty. Now, the idea of these fiduciary duties is that they protect a corporation’s shareholders by ensuring that a corporation’s officers and directors are actually acting for the benefit of the shareholders and, more generally, the corporation itself. And what is the benefit of being a shareholder of a corporation? In short: a share of the profits. Shareholders benefit from a corporation’s increasing (rate of) profit(s), especially when profits are used to issue dividends.

This seems fairly innocuous at first glance. It is this mass of shareholders, after all, who vote for and elect the directors. And, it is this group of directors who select the corporation’s officers. But the tension is hidden in plain sight. If corporate law (and neoclassical economics) takes as given the idea that firms maximize profit and that such behavior is natural, then why the need to ensure that profit-maximization occurs? While corporate law is premised upon the notion that it oversees the activities of sophisticated rational individuals interested in profits, the ultimate scandal is when an officer or director is this very individual who behaves accordingly but to the detriment of the class that has claims on a corporation’s profits. See, the problem for corporate law is the possibility that a rogue officer or director might maximize their own gains to the detriment of the shareholders.

In trying to address this tension, corporate law, by way of imposing and enforcing fiduciary duties, unwittingly brings in class through the back door. One of the many problems with capitalism is, of course, rooted in the fantastical belief that self-interested individuals acting selfishly somehow bring about, in the aggregate, the best possible social results. Well then, why the need to punish these self-interested officers and directors? Shouldn’t it be the case that, by the invisible hand, capitalists benefit in the aggregate when capitalists act selfishly? The answer is, simply, no because capitalism is a class system that must be vigorously maintained to reproduce itself across time. In this case, it is maintained not only by proscribing (as opposed to merely discovering) how corporate officers and directors behave, and not only obliging them to act to the benefit of a specific class of capitalists, but also legally punishing such officers and directors when they do not act to the benefit of corporate shareholders. For the maintenance of capitalism, this is a necessary fix. It is a needed measure to build the neoclassical utopia by ingraining specifically neoclassical values into the decision-making of corporate officers and directors. So, when corporate officers and directors do act for the benefit of the corporate shareholders, they are not doing so because of some innate nature, but rather according to a specifically proscribed set of values that are enforced by the specter of shareholders seeking legal recourse for a breach of a fiduciary duty.

It becomes increasingly clear that corporate law itself is an active project shaping the way corporate actors behave as economic agents. In the end, if corporate shareholders are not able to successfully lay claim to a share of the profits arising out of the private and productive consumption of labor power, then what good is it to be a capitalist? For capitalism to (re-)produce itself across time and space while maintaining legitimacy within the capitalist class itself, capitalists must be able to do as capitalists do: extract surplus-value from the production process through the consumption of labor power.

Thus, celebrating when ill-behaved corporate directors are caught and punished as if such a victory is yet one more blow to the legitimacy of capitalism misses the point: punishing such actors maintains, indeed even reinforces and reinvigorates, the capitalist organization of society. Shareholders taking legal actions for a director’s or officer’s breach of a fiduciary duty is part and parcel of furthering the utopia envisioned by neoclassical economists. The ideal corporate officer or director, according to the neoclassical utopian vision, is a quasi-religious one that directly contradicts the neoclassical view of human nature: an officer or director who acts selflessly to the benefit of the shareholders. Of course, such directors and officers are far and few between. It should then come as no surprise that corporate directors regularly bestow lavish compensation packages upon corporate officers to ensure that these officers take actions to maximize (surplus) value for shareholders. And, if a director or officer does breach their duties, they are a bad capitalist who are nearly certain to be replaced by a good capitalist, that is, one who maximizes corporate profits. So, a bad corporate actor, at least in the terms of corporate law, is really an actor who fails to uphold specifically neoclassical values that sustain the capitalist system of relations. And one should not forget that, in light of the Marxian critique of these capitalist social relations, this fight over profits is a fight over the surplus-value extracted from workers.

Perhaps one can readily imagine a different set of values and an alternative alignment of duties. Imagine a scenario in which workers are the shareholders and elect the boards of directors. This would be remarkably different. Rather than being incentivized to further extract value in the consumption of labor power, directors (and their corporations’ duly appointed officers) would have an incentive to reward workers with the value created by the workers’ very labor. But this is antithetical to capitalism and corporate law as they stand today. This set of values would turn the system on its head. And turning this system on its head means first pointing out corporate law’s blind spots, tensions, contradictions, and values that it takes for granted yet furthers in its quest to build a very particular vision of society. This task of criticism is rooted in the recognition that corporate law actively maintains capitalism all the while providing active measures to bring legal actions to those with claims on the surplus against those officers and directors who stand in the way of shareholders enjoying the fruits of others’ labor.

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The usual suspects have attacked Bernie Sanders’s proposal for the federal government to guarantee a job paying $15 an hour and health-care benefits to every American worker “who wants or needs one.”

According to Robert J. Samuelson, “The proposal would add to already swollen federal budget deficits. . .Then there’s inflation. The extra spending and higher wages might push prices upward.”

After listing a number of other “unavoidable” problems, Samuelson concludes:

Americans are suckers for great crusades that make the world safe for the pursuit of happiness. In this context, Sanders’s job guarantee seems a masterstroke. The chronically unemployed need jobs; and states and localities have large unmet needs for public and quasi-public services. It’s a bargain made in heaven.

Back here on Earth, the collaboration looks less noble. The object is to appear good and buy political support. Many of the suggested jobs seem best described as make-work. The irony is that, by assigning government tasks likely to fail, the advocates of activist government bring government into disrepute.

And here’s Ed Rogers:

Democrats want to talk about Republicans living in the past, but the new progressives, as they like to call themselves, are in fact a lot like the old socialists. They want free college, free cash, free health care, new mandates for this and that, and so on. The latest progressive policy du jour to be gaining traction among Democratic Party presidential hopefuls is the so-called “job guarantee.”

What they have in common, in addition to the usual red-blooded American red-baiting, is they both cite a liberal critic of the Sanders proposal, Mother Jones blogger Kevin Drum:

even our lefty comrades in social democratic Europe don’t guarantee jobs for everyone. It would cost a fortune; it would massively disrupt the private labor market; it would almost certainly tank productivity; and it’s unlikely in the extreme that the millions of workers in this program could ever be made fully competent at their jobs.

Let’s face it, Drum is right. The proposal would cost a fortune; it would massively disrupt the private labor market; it almost certainly would lower the official level of productivity; and millions of workers would probably never be fully competent at their jobs.

But that’s only because of how bad things are for workers in the United States right now. According to my calculations (illustrated in the chart at the top of the post), a quarter of full-time American workers currently earn less than $15 an hour. We’re talking about something on the order of 32 million people. And that’s not even counting part-time and unemployed workers. Plus all the workers, whether or not they currently have a low-paying job, who have costly or substandard health insurance.

Employing all those people—at $15 an hour, with medical benefits—would cost a fortune. But not employing them at decent wages already costs the United States a fortune, in individual and social costs. Moreover, there’s no doubt that, if people had a good shot at a federally funded job, they’d be more able to refuse the paltry pay and the indecent kinds of jobs private employers are currently offering. And workers on a federal jobs program might not achieve high levels of productivity—but they would be doing jobs, to repair the economic and social infrastructure, most people would benefit from. Finally, such workers might never become fully competent at their jobs. However, they would develop competencies above and beyond what they can manage to acquire when they’re unemployed or underemployed at their current low-paying jobs.

What Drum and others think is a hard-headed, realistic criticism of a job guarantee turns out to be a stinging indictment of American capitalism itself. The fact that there are “50 million people who would be better off with a government-guaranteed job than with the job they have now” calls into question the way the U.S. economy is currently organized.

That’s what’s really insane—sticking with the existing labor market, not the idea of proposing a Federal jobs program.