Can capitalism work in the interests of working people? Mervyn King has, inadvertently, revived this old question*. Last night, he pointed to falling real wages and said (pdf):
The squeeze in living standards is the inevitable price to pay for the financial crisis and subsequent rebalancing of the world and UK economies.
But this just raises the question: why must the squeeze be upon workers in the form of falling wages, rather than capitalists in the form of lower profits? As Duncan says, the question of who pays that bill is a political choice.
The proximate answer is trivial: high unemployment means workers lack bargaining power. So they suffer.
But must it be so?
There are two alternatives here, one statist and one less so.
The statist answer is to engineer a higher share of wages in GDP. The hope is that this would increase aggregate demand, not just by raising consumer spending, but by encouraging investment insofar as it raises demand expectations.
I have my doubts about this. I’m not sure the state has the tools to do this. One legacy of the financial crisis and the years of under-investment that preceded it is that the economy doesn’t have that much spare capacity; this is one reason why inflation has been unexpectedly high. This means that such policies might add to inflation, which itself might depress demand by encouraging savings.
Also, it’s unclear whether higher wages - even if they could be achieved - really would boost aggregate demand. It’s possible that capitalists might reduce investment in response to higher costs rather than increase it in response to higher expected demand. These classic papers by Marglin and Bhaduri and Bowles and Boyer (pdf) elucidate this question.
There is, though, a non-statist possibility - to transfer ownership from capitalists to workers. This would have two virtues.
First, in giving everyone a share of profits, it would mean that a squeeze on wages would not necessarily mean a squeeze on overall household incomes.
Secondly, a big reason for the wage squeeze is that capitalists are spending less than they are making in profits: as I say, this is in one sense true by identity. If workers take control of investment, though, this problem would be mitigated. In choosing the (aggregate) level of investment they would choose the aggregate wage level, and so - in effect - internalize an externality.
This, of course, only raises the question. What sort of institutions might achieve worker ownership - mutualism, some version of market socialism, pension fund socialism (pdf)?
And herein lies my big gripe. There has been insufficient interest in these possibilities. The left’s faith in statism has, in effect, crowded out interest in non-statist alternatives. And this has left it with very few intellectual resources.
* Note to glibertarians. By “capitalism” I do not mean a market economy. I assume this would exist under any form of ownership.