"Capital" and "labour"

Most people, says Arnold Kling, are "labor-capitalists":

Looking at the 21st-century economy through the filter of the Marxist categories of “capital” and “labor” is not particularly insightful. This is not a good era for either a plain coupon-clipper or an ordinary worker to accumulate great wealth.

You might imagine that, as a Marxist, I'd disagree. You'd be wrong. I agree with Arnold for a reason he doesn't mention.

This is that it has long been the case that wages, even for ordinary workers, contain an element of profits. Even before explicit profit-related pay became common, bigger, more profitable and more monopolistic firms tended to pay (pdf) higher wages. In one classic paper (pdf) Danny Blanchflower and colleagues concluded:

Pay depends upon an establishment's financial performance and oligopolistic position...Profitable employers therefore pay significantly more, ceteris paribus, than unprofitable ones.

What's true of workers is also true of bosses. A few years ago Frederick Guy wrote (pdf):

Virtually all studies of CEO pay levels find that most of the variation...is due to differences in firm size.

This explains something pointed out recently by Mike Perry - that the average US CEO earns less than an obstetrician. This is because the average CEO runs a small firms where profits are low.

Quite why CEO pay is so tightly related to firm size is an open question. At one extreme is the possibility (pdf) that in bigger firms the absolute value of CEOs' decisions is greater than it is in small firms; a CEO who can raise a company's value by 1% creates £100m in a £10bn company but only £1m in a £100m company. Big firms thus want to pay top dollar for the best "talent." At the other extreme is the possibility that larger firms generate more rents than smaller ones, which CEOs share in. Or, to put this a different way, CEOs have to be paid a fortune simply to pay them not to plunder the company's assets.

For the purposes of this post, we don't need a view on this issue. My point is instead that "capital" and "labour" don't necessarily map neatly into profits and wages, nor onto "workers" and "capitalists". Wages of workers and bosses can both be a share of the return on capital. In this sense, Arnold's right. There's a bit of capitalist in all of us.

This is, of course, not a new observation, nor one that is fatal to Marxism. I'm just reviving Erik Olin's Wright's idea of contradictory class locations. As he's written (pdf):

Managers within corporations, for example, can be viewed as exercising some of the powers of capital – hiring and firing workers, making decisions about new technologies and changes in the labor process, etc. – and in this respect occupy the capitalist location within the class relations of capitalism. On the other hand, in general they cannot sell a factory and convert the value of its assets into personal consumption, and they can be fired from their jobs if the owners are unhappy. In these respects they occupy the working class location within class relations.

This is true, to a greater or lesser extent, for millions of us.

This bears upon the debate about Piketty's book. All this implies that "r" - the return on wealth - directly affects earnings inequality. Which perhaps means Piketty's analysis matters for income inequality as well as wealth inequality.

Comments

[TickyW]

Surely, what distinguishes a worker from a capitalist is the source of income, not the quantum? Workers derive their income from their labour, capitalists from ownership of the means of production, distribution and exchange etc.

Managers are agents of capitalists but they still sell their labour- time, so they are workers in an objective sense.

Perhaps more difficult is the small-shop owner who runs the shop his or herself. The money- commodity chain for them is M-C-M which suggests they are capitalists, although the exploitative relationship between owner and worker is absent.

[Steve Roth]

This is of course true, and more so now than before the industrial revolution.

But Arnold's emphasis on this serves more to obfuscate and misdirect from the crux, rather than to illuminate.

Red and yellow are distinct colors, even though orange exists.

[Anders]

Chris - Marxism may be intact, but if workers and capitalists don't map on to contemporary categories, where is the contemporary re-working of the marxist basics, as in the communist manifesto?

[rogerh]

So, a global wealth tax with a view to redistribution. I believe it was said that 100 years after the French Revolution much the same class of people had become the rich as had been the case before that pruning exercise. So why would any body-politic be keen on redistribution? To prevent revolution - we have universal listeners to help with that. To encourage new growth and investment - that happens naturally, just that we in the West don't like the terms offered. To prevent or at least pay for war - possibly but sensible people know war is an unpredictable game best avoided at any price. So, a long period of symbiosis between the global body-politic and the very rich may be in prospect. What might disturb this stable state? - possibly resource competition or religion or even a second American revolution.

[Paul McMc]

"Perhaps more difficult is the small-shop owner who runs the shop his or herself."

Wouldn't they be petit-bourgeois?