Posts Tagged ‘exploitation’

Tom Toles Editorial Cartoon - tt_c_c180219.tif

Special mention

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Economic inequality is arguably the crucial issue facing contemporary capitalism—especially in the United States but also across the entire world economy.

Over the course of the last four decades, income inequality has soared in the United States, as the share of pre-tax national income captured by the top 1 percent (the red line in the chart above) has risen from 10.4 percent in 1976 to 20.2 percent in 2014. For the world economy as a whole, the top 1-percent share (the green line), which was already 15.6 percent in 1982, has continued to rise, reaching 20.4 percent in 2016. Even in countries with less inequality—such as France, Germany, China, and the United Kingdom—the top 1-percent share has been rising in recent decades.

Clearly, many people are worried about the obscene levels of inequality in the world today.

In a famous study, which I wrote about back in 2010, Dan Ariely and Michael I. Norton showed that Americans both underestimate the current level of inequality in the United States and prefer a much more equal distribution than currently exists.*

In other words, the amount of inequality favored by Americans—their ideal or utopian horizon—hovers somewhere between the level of inequality that obtains in modern-day Sweden and perfect equality.

What about contemporary economists? What is their utopian horizon when it comes to the distribution of income?

Not surprisingly, economists are fundamentally divided. They hold radically different views about the distribution of income, which both inform and informed by their different utopian visions.

For example, neoclassical economists, the predominant group in U.S. colleges and universities, analyze the distribution of income in terms of marginal productivity theory. Within their framework of analysis, each factor of production (labor, capital, and land) receives a portion of total output in the form of income (wages, profits, or rent) within perfectly competitive markets according to its marginal contributions to production. In this sense, neoclassical economics represents a confirmation and celebration of capitalism’s “just deserts,” that is, everyone gets what they deserve.

From the perspective of neoclassical economics, inequality is simply not a problem, as long as each factor is rewarded according to its productivity. Since in the real world they see few if any exceptions to perfectly competitive markets, their view is that the distribution of income within contemporary capitalism corresponds to—or at least comes close to matching—their utopian horizon.

Other mainstream economists, especially those on the more liberal wing (such as Paul Krugman, Joseph Stiglitz, and Thomas Piketty), hold the exact same utopian horizon—of just deserts based on marginal productivity theory. However, in their view, the real world falls short, generating a distribution of income in recent years that is more unequal, and therefore less fair, than is predicted within neoclassical theory. So, bothered by the obscene levels of contemporary inequality, they look for exceptions to perfectly competitive markets.

Thus, for example, Stiglitz has focused on what he calls rent-seeking behavior—and therefore on the ways economic agents (such as those in the financial sector or CEOs) often rely on forms of power (political and/or economic) to secure more than their “just deserts.” Thus, for Stiglitz and others, the distribution of income is more unequal than it would be under perfect markets because some agents are able to capture rents that exceed their marginal contributions to production.** If such rents were eliminated—for example, by regulating markets—the distribution of income would match the utopian horizon of neoclassical economics.***

What about Marxian theory? It’s quite a bit different, in the sense that it relies on the assumptions similar to those of neoclassical theory while arriving at conclusions that are diametrically opposed. The implication is that, even if and when markets are perfect (in the way neoclassical economists assume and work to achieve), the capitalist distribution of income violates the idea of “just deserts.” That’s because Marxian economics is informed by a radically different utopian horizon.

Let me explain. Marx started with the presumption that all markets operate much in the way the classical political economists then (and neoclassical economists today) presume. He then showed that even when all commodities exchange at their values and workers receive the value of their labor power (that is, no cheating), capitalists are able to appropriate a surplus-value (that is, there is exploitation). No special modifications of the presumption of perfect markets need to be made. As long as capitalists are able, after the exchange of money for the commodity labor power has taken place, to extract labor from labor power during the course of commodity production, there will be an extra value, a surplus-value, that capitalists are able to appropriate for doing nothing.

The point is, the Marxian theory of the distribution of income identifies an unequal distribution of income that is endemic to capitalism—and thus a fundamental violation of the idea of “just deserts”—even if all markets operate according to the unrealistic assumptions of mainstream economists. And that intrinsically unequal distribution of income within capitalism becomes even more unequal once we consider all the ways the mainstream assumptions about markets are violated on a daily basis within the kinds of capitalism we witness today.

That’s because the Marxian critique of political economy is informed by a radically different utopian horizon: the elimination of exploitation. Marxian economists don’t presume that, under capitalism, the distribution of income will be equal. Nor do they promise that the kinds of noncapitalist economic and social institutions they seek to create will deliver a perfectly equal distribution of income. However, in focusing on class exploitation, they both show how the unequal distribution of income in the world today is affected by and in turn affects the appropriation and distribution of surplus-value and argue that the distribution of income would likely change—in the direction of greater equality—if the conditions of existence of exploitation were dismantled.

In my view, lurking behind the scenes of the contemporary debate over economic inequality is a raging battle between radically different utopian visions of the distribution of income.


*The Ariely and Norton research focused on wealth, not income, inequality. I suspect much the same would hold true if Americans were asked about their views concerning the actual and desired degree of inequality in the distribution of income.

**It is important to note that, according to mainstream economics, any economic agent can engage in rent-seeking behavior. In come cases it may be labor, in other cases capital or even land.

***More recently, some mainstream economists (such as Piketty) have started to look outside the economy, at the political sphere. They’ve long held the view that, within a democracy, if voters are dissatisfied with the distribution of income, they will support political candidates and parties that enact a redistribution of income. But that hasn’t been the case in recent decades—not in the United States, the United Kingdom, or France—and the question is why. Here, the utopian horizon concerning the economy is the neoclassical one, or marginal productivity theory, but they imagine a separate democratic politics is able to correct any imbalances generated by the economy. As I see it, this is consistent with the neoclassical tradition, in that neoclassical economists have long taken the distribution of factor endowments as a given, exogenous to the economy and therefore subject to political decisions.


Special mention


Liberal mainstream economists all seem to be lip-synching Bobby McFerrin these days.

Worried about automation? Be happy, write Laura Tyson and Susan Lund, since “these marvelous new technologies promise higher productivity, greater efficiency, and more safety, flexibility, and convenience.”

Worried about the different positions in current debates about economic policy? Be happy, writes Justin Wolfers, and rely on the statistics produced by government agencies and financial firms and the opinions of mainstream economists.

Me, I remain worried and I have no reason to accept mainstream economists’ advice for being happy.

Sure, new forms of automation might lead to higher productivity and much else that Tyson and Lund find so alluring. But who’s going to benefit? If we go by the last few decades, large corporations and wealthy individuals are the ones who are going to capture most of the gains from the new technologies. Everyone else, as I have written, is going to be forced to have the freedom to either search for new jobs or deal with the fundamental transformation of the jobs they manage to keep.

When it comes to separating fact from fiction, aside from the embarrassing epistemological positions liberals rely on, where are the statistics that might help us make sense of what is going on out there—numbers like the Reserve Army of Unemployed, Underemployed, and Low-wage Workers or the rate of exploitation.

You want me not to worry? Analyze what’s going to happen to workers and the distribution of income as automation increases and calculate the kinds of economic numbers other theoretical traditions have produced.

Even better, let workers have a say in what and how new technologies are introduced and change economic institutions in order to eliminate the Reserve Army and class exploitation.

Then and only then will I be happy.


Special mention

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Apologists for mainstream economics (such as Noah Smith) like to claim that things are OK because good empirical research is crowding out bad theory.

I have no doubt about the fact that the theory of mainstream economics has been bad. But is the empirical research any better?

Not, as I see it, in the academy, in the departments that are dominated by mainstream economics. But there is interesting empirical work going on elsewhere, including of all places in the International Monetary Fund (as I have noted before, e.g., here and here).

The latest, from Mai Dao, Mitali Das, Zsoka Koczan, and Weicheng Lian, documents two important facts: the decline in labor’s share of income—in both developed and developing economies—and the relationship between the fall in the labor share and the rise in inequality.

I demonstrate both facts for the United States in the chart above: the labor share (the red line, measured on the left) has been falling since 1970, while the share of income captured by those in the top 1 percent (the blue line, measured on the right) has been rising.

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Dao et al. make the same argument, both across countries and within countries over time: declining labor shares are associated with rising inequality.

And they’re clearly concerned about these facts, because inequality can fuel social tension and harm economic growth. It can also lead to a backlash against economic integration and outward-looking policies, which the IMF has a clear stake in defending:

the benefits of trade and financial integration to emerging market and developing economies—where they have fostered convergence, raised incomes, expanded access to goods and services, and lifted millions from poverty—are well documented.

But, of course, there are no facts without theories. What is missing from the IMF facts is a theory of how a falling labor share fuels inequality—and, in turn, has created such a reaction against capitalist globalization.

Let me see if I can help them. When the labor share of national income falls—the result of the forces Dao et al. document, such as outsourcing and new labor-saving technologies—the surplus appropriated from those workers rises. Then, when a share of that growing surplus is distributed to those at the top—for example, to those in the top 1 percent, via high salaries and returns on capital ownership—income inequality rises. Moreover, the ability of those at the top to capture the surplus means they are able to shape economic and political decisions that serve to keep workers’ share of national income on its downward slide.

The problem is mainstream economists are not particularly interested in those facts. Or, for that matter, the theory that can make sense of those facts.


There are plenty of reasons to be interested in—and, even more, concerned about—Facebook. Many of them are raised in the recent review of Facebook-related books by John Lanchester [ht: db]: the fragmentation of the polity (via the targeting of posts), the dissemination of “fake news” (which played an important role in the 2016 U.S. presidential election), the undermining of other livelihoods (such as journalism and music), the level of surveillance of users (much more than any national government), the violation of anti-monopoly rules (via individualized pricing), and so on.

All of them are important—and they get at what the Facebook business model is all about:

For all the talk about connecting people, building community, and believing in people, Facebook is an advertising company.

That’s right. That’s how the owners of Facebook make their money: they track users, collect information, and then sell that to advertisers.*

But it still doesn’t get at the issue of who works for Facebook, who creates that value, what the class structure of Facebook (and Google and other such companies) is.

Lanchester’s answer is that we, the two billion or so of us who use Facebook, actually work for the social-media giant.

Access to an audience – that unprecedented two billion people – is a wonderful thing, but Facebook isn’t in any hurry to help you make money from it. If the content providers all eventually go broke, well, that might not be too much of a problem. There are, for now, lots of willing providers: anyone on Facebook is in a sense working for Facebook, adding value to the company.

In one sense, Lanchester is right: if Facebook users don’t create or repost content and click on and respond to one another’s postings, then Facebook’s business model falls apart. In fact, as Lanchester explains,

Perhaps the biggest potential threat to Facebook is that its users might go off it. Two billion monthly active users is a lot of people, and the ‘network effects’ – the scale of the connectivity – are, obviously, extraordinary. But there are other internet companies which connect people on the same scale – Snapchat has 166 million daily users, Twitter 328 million monthly users – and as we’ve seen in the disappearance of Myspace, the onetime leader in social media, when people change their minds about a service, they can go off it hard and fast.

But what I find interesting is the fact that Lanchester can write a longish essay on Facebook and never once mention the word labor—and the only people who seem to be working are Facebook users.

What about Facebook’s employees? As it turns out, Facebook reported a headcount of 18,770 in its first-quarter earnings release (and likely employs more workers, as independent contractors for specific projects). Why don’t we consider them to be the ones who create the value realized by selling space to advertisers and information to others who purchase the data gathered by Facebook? And Facebook employees the ones who are working for and being exploited by Facebook’s board of directors?

When General Motors sells cars, the people who purchase and drive the cars aren’t being exploited; GM workers are. The same is true for other corporations, from Abbott Laboratories to Zoetis (which, along with Facebook, make up the Standard & Poor’s 500, covering about eighty percent of the American equity market by capitalization). They’re employees, not their customers, are the ones who create value and surplus-value.

So, why is Facebook (and, by the same token, other social-media and internet companies) different?

The answer, I think, is our relationship to the commodity being produced and sold is different. We purchase cars—and, if we’re aware of it, we know they’re produced by exploited auto-workers. But in the case of Facebook, we’re not purchasing anything at all, at least directly. We post content to our friends or advertise a business or try to form a community. And then it’s Facebook that collects data about us and sells it—not to us but to others, other corporations. Without our participation, of course, Facebook would not have anything to sell, and therefore no way of making a profit.

And, more generally, we seem to be spending more and more time involved in activities for which we are not remunerated but are essential for the profit-making activities of corporations we don’t work for. We post on social-media sites. We use search engines to navigate the internet. We search for flights. We check-out and bag the commodities we purchase at retail stores. And so on.

But I’m not convinced we’re creating value and subjecting ourselves to class exploitation. We may be performing labor but we’re not working for those corporations. And we are being commodified, and participating in our commodification.

But we’re not working for those corporations. Their employees are—and they’re the ones who are being exploited.


*Although, according to a recent report, Facebook may exaggerate the reach of its advertising platform: it claims to reach millions more users among specific age groups in the U.S. than the official census data show reside in the country.