Mario Balotelli & primitive accumulation

Mario Balotelli's transfer to AC Milan highlights the Marxian critique of capitalism.

How can Man City get £19m for a player who is so obviously flawed? The answer's simple. It's because their great wealth means they did not need to sell him, and so could drive a hard bargain. The party in the strongest bargaining position gets most of the surplus from any trade.

As the old saying goes, "money begets money." Wealth - or what amounts to the same thing, cheap and easy access to capital - can be used to get the better end of deals. For example:

- Being cash-rich gives you the chance to profit from fire sales and desperate fund-raisings, as when Warren Buffett lent to Goldmans in 2008.

- Companies that are cash-rich or have a low cost of capital can use this to engage in roll-ups and multiple arbitrage and so profit from taking over businesses even if they do not manage them much better.

- Banks can "hoover up pennies" - make low-profit quasi-arbitrage trades - if their cost of capital is low enough. This is why they are so opposed to Volcker rules and the ending of "too big to fail" subsidies; they raise capital costs and thus render a lot of their activities unprofitable.

- If you have access to easy money, you can profit by lending this at high rates to desperate borrowers, or by selling low-value insurance (pet insurance, extended warranties etc) to the cash-poor.

All this should be trivial. Marxists, however, add to this list the capital-labour relationship. In most cases - top footballers being an exception - physical capital is scarce and labour abundant. And this means capital can extract most of the surplus generated from the trade between capital and labour. Sure, workers are better off working than not. But their poor bargaining position means they are not much so. And this begets exploitation. Exploitation, says John Roemer, is "the distributional consequence of an unjust inequality in the distribution of productive assets and resources."

That word "unjust" is doing some work. Buffett's trade with Goldmans was good for him and bad for them, but we wouldn't really call it exploitative because the inequality that begat it was not unjust.

So, is the inequality between worker and capitalist unjust? You can certainly tell just-so stories in which it isn't. But Marxists take a historical perspective. Marx devoted a large part of Capital vol I to describing "primitive accumulation", the process whereby capital came into the world as a result of theft, slavery and conquest: "capital comes dripping from head to foot, from every pore, with blood and dirt." This is, of course, no mere history: how did Russian oligarchs get rich?

An overlooked difference between Marxists and their opponents is that Marxists think this matters.

Comments

[Luis Enrique]

I think it would be easy to make all these points using the vocabulary of mainstream economics - when being taught intro micro, I was certainly taught that if the initial endowment is unjust then so will the market outcome. I'm under the impression quite a lot of work has been done on bargaining power, which is now part of the mainstream theory of labour economics. There's plenty of work on the importance of credit constraints too.

So why doesn't mainstream economics string all this together into a grand narrative of inherited advantages, tilted playing fields and so on? I think you could do so without straying outside mainstream methodology.

I know one potential answer: mainstream economist serve the interests of the ruling class. Well, if they do, it is de facto, not knowingly so. My guess is that most economists would say they stay away from work that looks overtly political, citing some sort of "Whereof one cannot speak, thereof one must be silent" reasoning.

[Luis Enrique]

[of course another explanation is that lots of clubs wanted Balotelli flaws and all, and that without those flaws he'd be worth £39m. Palace got £15m for Zaha, not because their great wealth gave them bargaining power]

[Adam]

Balotelli had a damn good season last year scoring 20 goals in all competitions and scoring some very important goals. I actually think £19 million is cheap for a player of his quality.

Had he continued to play on a regular basis and score goals Man City would have been happy to let the sideshow continue.

Applying a 'Marxian critique' in this instance, and to football in general, seems a little silly in my opinion.

[Metatone]

I think Luis Enrique's point about Zaha is a good one.

To add to the football critique, Mario's loss of form this year at City was less about off the field distractions and more because Mancini moved to a different tactical style which suits Balotelli less.

[chris]

@ Adam - Balotelli's goals per game record at Man City of 20 goals in 54 games is almost identical to Olivier Giroud's at Arsenal (13 in 32) - yet Giroud cost Arsenal half as much. "Had he continued to play on a regular basis" begs the question: why wasn't he playing regularly? It's for the same reason that £19m is a lot to pay.
@ Luis - Palace got as much as £15m for Zaha because they did have power - the sole registration of one of the country's few promising attacking players.

[Metatone]

Luis Enrique: Politics is definitely part of it.

However, the culture of economics is another part of it, culture in the sense of embedded assumptions. Acknowledging a grand narrative of inherited advantage means acknowledging that power plays a part in trade and that's a complication the whole profession prefers not to tackle in a comprehensive way, because it complicate an awful lot of models, not just labour relations.

[Anonymous]

"That word "unjust" is doing some work. Buffett's trade with Goldmans was good for him and bad for them, but we wouldn't really call it exploitative because the inequality that begat it was not unjust."

I wonder whether the inequality arising from George Osborne's inherited wealth is just or unjust. He has done nothing to deserve (earn) his wealth other than to have been born into a wealthy family. This observation puts a different spin on the "something for nothing" narrative generated by.... er.... Osborne to justify the removal of benefits from claimants.

As Luis correctly observes, mainstream economics fails to acknowledge or deal with these distortions. In contrast, a Marxian paradigm does and hence is logically preferable.

[Luis Enrique]

Metatone,

Well as I said, one could go a long way with standard economic ingredients like inherited wealth, credit constraints, bargaining power and so forth, without having to introduce "power" in some other sense. And don't forget that contract theory has a principal and an agent, the former having power to set contract terms.

Anon,

I must have expressed myself poorly. I don't think econ fails to acknowledge these things. Go to google scholar and search for "economics inherited wealth". Don't forgt mainstream econ builds in assumptions, about diminishing returns to consumption and utilitarian welfare maximization, in favour of redistribution. Look at that paper Chris highlighted recently about discrimination. Mainstream economics incorporates a lots out distortions as you'd put it, that could be spun into a very left wing story, but for whatever reason it tends to be spread across disparate research papers, all of which do their best to downplay the political aspect in favour of supposed cool objective analysis.

[PauW]

"I know one potential answer: mainstream economist serve the interests of the ruling class. Well, if they do, it is de facto, not knowingly so. My guess is that most economists would say they stay away from work that looks overtly political, citing some sort of "Whereof one cannot speak, thereof one must be silent" reasoning."

And since the ruling class steers the cultural processes by means of their grasp on the leading universities and their faculties, a powerful feedback loop in favour of the dominant class.

[Tom]

Balotelli's two goals against Germany in the European Championship did a lot to boost his value. When a player has a good reputation in his home country it takes a lot of years of mediocrity abroad to bring that reputation down a notch or two.

[FromArseToElbow]

Reported transfer fees in football are unreliable. Apart from contingent elements (£2m in Balotelli's case, apparently), and sell-on clauses, it is standard practice to include agent fees (estimated as 28% of the total by FIFA). They are also not easily comparable on a like-for-like basis, as the price will reflect the duration and value of the player's remaining contract.

Both buyer and seller have an interest in talking them up: the seller to avoid the charge of letting talent go cheap and the buyer to appease fans demanding they splash the cash. The reported fee for Balotelli, 22m Euros, happens to be the reported fee City paid Inter in 2010. I suspect an element of face-saving by City, so the real cost to Milan may be lower.

In this specific case, you also have to factor in Berlusconi's desire to dominate the news agenda.

[Stanley T]

If money begets money, why is the turnover of capitalist firms at the top so high (they rarely stay there for more than a generation). Because money begets complacency, and they are exposed to competition, unlike in aristocratic or socialist societies.

[gav]

The idea that coasian exchanges leave society with the same optimal outcome regardless of initial distribution is a distructive idea, suggesting that societal utility is a zero sum game. A more even distribution of goods and services clearly would create a higher net utility of society.

[wayne elsey]

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