Capitalism & the low-paid

Is capitalism compatible with decent living standards for the worst off*? This old Marxian question is outside the Overton window, but it's the one raised by Ed Miliband's promise to raise the minimum wage to £8 by 2020.

First, the maths. This implies a rise of 4.2% per year; the NMW will be £6.50 from next month. However, as the NMW rises, workers' incomes don't rise one-for-one, because tax credits get withdrawn. Assuming an average deduction rate of 50% (it varies depending on whether workers have children - see chart 5.8 in this pdf), this implies a rise of 2.1% per year. However, if the OBR's forecasts are correct, CPI inflation will average 2% over 2015-20.

Miliband's promise, therefore, amounts to little better than a pledge that the incomes of the low paid won't fall in real terms - and not even that much, to the extent that inflation might exceed target.

Now, in fairness, Labour might well do more to help the low-paid by, say, increasing the generosity of in-work benefits. But promising to do this before the election would merely run into the question from dickhead journalists: "where will the money come from?" So it's best for Labour to under-promise.

Nevertheless, the raises the issue: what would serious policies to help the low-paid entail? I suspect they would require:

 - Macroeconomic policies to boost employment. If you ensure a high demand for labour, you might eventually raise its price.

 - A serious jobs guarantee; this would help give work to the less skilled, who might not benefit so much from higher aggregate demand alone.

 - Policies to strengthen the bargaining power of low-paid workers. These could include stronger trades unions (pdf), but I'd add a citizens' basic income, which would give workers a guaranteed outside income, and so empower them to reject exploitative jobs.

This brings me to my opening question. Are these policies compatible with capitalism? On the one hand, yes - because higher aggregate demand would raise the mass of profits. But on the other hand, no**. For one thing, as Kalecki famously pointed out, macro policies to increase employment would weaken capitalists' political power by making business confidence less important for growth. And for another thing, more bargaining power for workers means less for capitalists. It's moot.

But this is precisely the debate we should be having. It could be that, whilst the constraints imposed by capitalism are tight, Labour might be over-estimating their tightness, and so will under-deliver for the low-paid.

* Note for rightists: As Adam Smith said, the notion of what's decent rises as incomes rise. And the fact that capitalism has massively improved workers' living standards in the past does not guarantee it will do so in future. As Marx said, a mode of production which increases productive powers can eventually restrain them. And as Bertrand Russell pointed out, inductive reasoning can go badly wrong.   

** Simple maths might clarify. The profit rate, P/K can be expressed thus: P/K = Y/K x P/Y. Expansionary macro policy - especially in an environment of wage-led growth - would raise Y/K. But stronger workers' bargaining power would cut P/Y. 

Comments

[Boffy]

"As Marx said, a mode of production which increases productive powers can eventually restrain them."

The fact it CAN do so does not mean that it is doing so or will do so in any known time frame. Marx's whole point set out in the Grundrisse that Capitalism over the longer term continually increases workers real wages is what he terms its "Civilising Mission".

The argument about immiseration was the idea of Lassalle NOT Marx. Marx wrote,

"It is as if, among slaves who have at last got behind the secret of slavery and broken out in rebellion, a slave still in thrall to obsolete notions were to inscribe on the program of the rebellion: Slavery must be abolished because the feeding of slaves in the system of slavery cannot exceed a certain low maximum!"

Critique of the Gotha Programme.

Our opposition to capitalism is not a Lassallean belief that it causes low wages, but that it is a system of wage slavery! That no matter how high wages, no matter how affluent the workers, they remain wage slaves, denied ownership of the means of production.

"Simple maths might clarify. The profit rate, P/K can be expressed thus: P/K = Y/K x P/Y. Expansionary macro policy - especially in an environment of wage-led growth - would raise Y/K. But stronger workers' bargaining power would cut P/Y."

As Marx and Engels state, P/K is the rate for profit margins not the annual rate of profit, which is s x n/C, where s is the surplus value produced in one turnover period, n is the number of turnovers during the year, and C is the value of the advanced capital for one turnover period.

As productivity rises, the number of turnovers increases, so the rate of profit rises, and also capital is released for additional accumulation. But, also the rise in productivity would tend to a) reduce the value of labour-power pushing up the rate of surplus value and rate of profit, b) reduce the value of constant capital, thereby also releasing capital for additional accumulation, and raising the annual rate of profit.

As Henry Ford discovered, even large rises in wages are compatible with sharply rising rates and masses of profits, because of the rise in productivity, and the above consequences.

[Whyvert]

"If you ensure a high demand for labour, you might eventually raise its price."

If you ensure a lower supply of labour, via less immigration, you might eventually raise its price.

Can this hypothesis even be be expressed in your circles? You like listing possible options for things, but this option seems to be beyond even thinkable.

[Dave Timoney]

@Whyvert, your option is not unthinkable so much as illogical. If you reduce the labour supply (by whatever means) you also reduce aggregate demand because every worker is also a consumer. This, all other things being equal, will reduce employment and thus push the price of labour down, not up.

You could argue that preventing further immigration (i.e. capping population growth) might make labour scarcer and thus drive up its price, but this would only affect higher skill roles where demand is high (e.g. doctors). Low skill jobs would still pay low wages because there remains a surplus of labour (i.e. 2 million unemployed).

[Brett]

This brings me to my opening question. Are these policies compatible with capitalism?

This is always a bizarre question to me. Capitalism is still at play even if you fiddle around with the conditions under which the market can clear and investment can proceed.

[Deviation From The Mean]

Boffy confuses me quite often, one minute he is arguing that wage rises and social democracy are in the objective interest of big capital and then he warns us against federalism in the UK because capitalists will seek to impose low wages and conditions on people.

Make your mind up Boffy.

[Luis Enrique]

I cannot believe that modest improvements in the lot of the worst off, at the modest expense of the better off, would destroy capitalism

[Boffy]

"I cannot believe that modest improvements in the lot of the worst off, at the modest expense of the better off, would destroy capitalism."

Quite right. In fact, big industrial capital generally already pays above minimum wages, and provides better conditions etc. It is the small reactionary sections of capital, that Thatcher encouraged in the 1980's that do not, and which depend upon being exempt from a range of minimum standards and requirements who do not, and who for that reason look to protectionism by being outside the EU etc.

As Marx demonstrates, higher wages favour big capital at the expense of that small capital. It encourages further concentration; it encourages capital to invest in means of raising productivity, which raises the rate of turnover of capital, raises the rate of profit, releases capital and encourages additional accumulation of capital. It thereby increases the absolute level of employment whilst reducing the relative level of employment, and as Marx demonstrates, in that process necessarily increases the mass of profit.

[pablopatito]

"Miliband's promise, therefore, amounts to little better than a pledge that the incomes of the low paid won't fall in real terms"

You sure? Working tax credits are paid on household income, not individual income, aren't they? So a couple working full-time on minimum wage won't qualify for any credits, but will be significantly better off after Miliband's rise.

[DJK]

"You could argue that preventing further immigration (i.e. capping population growth) might make labour scarcer and thus drive up its price, but this would only affect higher skill roles where demand is high (e.g. doctors). Low skill jobs would still pay low wages because there remains a surplus of labour (i.e. 2 million unemployed)."

But this is only ever true if the range of skills that immigrants bring is comparable to the range of skills in the existing population. Large scale, low-skilled immigration (and brain-drain emigration) adversely affect the working classes.

The other point to make is that raising the minimum wage does nothing for the increasing numbers of self-employed.

[Boffy]

The argument in relation to the self-employed is a crock. Its a version of the Tories argument that a higher Minimum Wage would cause unemployment, because small inefficient firms can't afford to pay their workers enough to live on.

It may be true, that these small inefficient employers can't exist without paying poverty wages, but that simply means that these employers should not exist, and the capital they use inefficiently would be better employed elsewhere, where it could produce bigger profits, and still employ workers on decent pay and conditions.

The Low pay Commission terms of reference which limit what it sets the Minimum Wage at is then inadequate. Its tarts from what is compatible with the interests of business, not what is required as a wage for the average worker to have something approaching a minimum living standard.

The same argument is put by these small inefficient businesses to say they cannot afford to provide women workers with maternity leave and so on. If such businesses said they could not exist without employing child labour, as happened in the 19th Century, most people would have no problem in identifying that this argument does not justify the exploitation of child labour.

If a business said it must be allowed to continue to pollute its local environment willy-nilly because it would be forced out of business if it was not allowed to ignore minimum environmental laws, most people would recognise that this was not a valid argument.

So, why should we accept that some workers cannot have decent wages, because some employers would go bust if they had to pay them?

[pablopatito]

Boffy, why would we want firms to go bust? Imagine a coal mine in the 1980s that can't produce coal economically? Does that mean it should close? Not necessarily if the cost of unemployment is greater than the cost of subsidising the coal mine. There are different ways to subsidise the coal mine - and paying tax credits to workers is one. In this case, tax credits may be better than a minimum wage.

[Deviation From The Mean]

"Imagine a coal mine in the 1980s that can't produce coal economically? Does that mean it should close?"

I guess it should be phased out in an orderly way, assuming cheaper alternatives have been found.

I am still struggling as to why Boffy is against federalism because he thinks that objectively capitalists will seek to locate in the areas of the lowest pay and conditions but on the other hand he claims big capitalists objectively want higher pay and better conditions? His theory is a mess and a mass of contradictions.

[Dave Timoney]

@DJK, re "Large scale, low-skilled immigration (and brain-drain emigration) adversely affect the working classes".

Not so. During periods of high demand for low skill labour, native labour tends to disproportionately benefit from the growth in higher-grade opportunities (and skilled apprenticeships) that overall rising demand produces.

For example, Irish immigrants filled many of the low-skill roles in British industry during the 19th century. Native labour tended to move up the job hierarchy as a result. Sectarianism (notably in Glasgow and Liverpool) was a means of insitutionalising this economic apartheid - i.e. reserving higher pay roles for native (Protestant) labour.

Likewise, Caribbean immigrants who took low-grade jobs in transport and the health service in the 50s and 60s were backfilling native workers who were absorbed into higher-skill technical and clerical roles during a period of economic growth.

The "brain drain" is a myth on two counts. The first - what you might call the lump of genius fallacy - holds that we cannot substitute for lost talent. If this were true, it would point to a total failure of education to create opportunities for smart working class kids. Despite what the Daily Mail might claim, eductaional attainment has steadily risen since 1945.

The second count is that the "drain" trope ignores the offset of imported talent. The UK has always been a net beneficiary - more in than out - because we are a relatively rich country (so we drain talent from poorer countries) and offer significant soft benefits (learning English, access to the EU etc).

[Phil Beesley]

I'll have to cut you short, Gastro George. Your point, "They are Very Important People, and must lead our discussion even while they know so little about it" raises the question of boredom.

Ed Balls, following the model of Jack Straw, will tire you more in a two minute interview than his predecessor managed over five minutes.

[Boffy]

Pablo,

So, should we have kept subsidising producers of buggy whips, to avoid having to spend money on unemployment benefit? How long do you think we should keep putting capital into a bottomless pit, rather than using that capital effectively so as to be able to grow the economy, and provide people with real rather than fake jobs?

At the start of the 20th century, there were around 2 million people employed in the British coal industry. By the 1960's that was already down to around 200,000, yet in the 1960's we had basically full employment. The near 2 million miners had not been consigned to unemployment. Capital was instead used to develop a profitable car industry, pharmaceutical industry, domestic products industry and so on, that provided real jobs for people.

If DFTM is confused, its just too bad, because I don't feed trolls like him. The argument is straightforward to anyone who actually wants to understand it rather than just provoke a response.

[Boffy]

"In this case, tax credits may be better than a minimum wage."

Another reason this is wrong is that in the case you cite, the tax credits would not just be paid to miners, but to any worker on sufficiently low pay, which just encourages bad employers to pay low wages and thereby obtain this subsidy.

If we had a proper level of minimum wage that allowed the average worker a wage that ensured the value of labour-power, combined with a minimum level of unemployment benefit, all these other benefits like Child benefit, Housing Benefit and so on could be, and should be scrapped, which would mean a huge saving in administration costs alone.

[Deviation From The Mean]

"The argument is straightforward to anyone who actually wants to understand it rather than just provoke a response."

Boffy you are the troll, your argument is totally confused and mired in contradictions. And when presented with this you do your usual trick of insulting. Your only response is to say the argument is straightforward without providing the straightforward answer, surely a classic case of trollism in action!

You claim that big capital objectively desires higher wages, better conditions, you cite Fordism etc and then say if we had federalism capital would seek out the areas where pay and conditions were at their lowest? But if objectively, as you claim, big capital wants higher wages and better conditions why wouldn't they take the objective choice of locating to the high wage areas?

I eagerly await your straightforward answer!

"How long do you think we should keep putting capital into a bottomless pit"

Since when have Marxists said 'we' in relation to putting capital into anything? The point is that under capitalism these decisions are not done in an orderly and phased fashion, they tend to be highly destructive. And Thatcher's attack on the mining communities was highly destructive.

[George Carty]

Deviation From The Mean: "I am still struggling as to why Boffy is against federalism because he thinks that objectively capitalists will seek to locate in the areas of the lowest pay and conditions but on the other hand he claims big capitalists objectively want higher pay and better conditions? His theory is a mess and a mass of contradictions."

Workers' pay and working conditions are a kind of Prisoners' Dilemma scenario -- an individual employer benefits by paying poverty wages and imposing bad working conditions, but the capitalist class collectively is worse off due to the reduction in aggregate demand.

An extreme example of this was in the early 19th century, where English workers were virtually being worked to death (as Marx described in his "The Condition of the Working Classes in England"), but the wages and conditions could only be improved by legislation, because no individual employer dared improve wages and conditions unilaterally for fear of being outcompeted.

[Deviation From The Mean]

Hi George,

Boffy has denied that the historic struggles of Labour movement contributed much to raising their working conditions and living standards, and it was actually the reality of capitalist dynamics that did this. In effect, no real need for a workers movement. Most on the left would argue that where unions are weak workers suffer, social democracy is weakened. But not Boffy, he claims that big capital will take care of social democracy. Now in itself this argument may hold water but Boffy's argument is confused.

He has said that objectively big capitalists want social democracy. So the question is why objectively under federalism will big capital not seek out those areas that offer the highest pay and best working conditions?

The straightforward answer to this still awaits us.

I am well aware of the idea that bosses want to screw their own workers and enrich everyone else's (though I am not totally sold on the idea). But this has nothing much to do with Boffy's confused arguments.

[Boffy]

George,

You are mostly correct, but not completely.

Firstly, its true that Marx recognised that because workers increasingly comprise the majority of consumers, there is a contradiction between the production and realisation of surplus value. That is the more surplus value is increased as a result of reducing wages relative to the value of output, the more this creates a problem realising that surplus value, because workers lack the wages to buy that output, whilst capitalists seek to use the profits to increase their accumulation (and so output) further, rather than increase their own consumption.

However, this is different to Marx's argument in relation to the mechanism for the determination of wages. In Capital I, Marx describes the way wages are determined as being the phenomenal form of the value of labour-power. Its not that capital has to have higher wages to maintain a given level of aggregate demand, but that if wages fall over a prolonged period, below the value of labour power, the quantity of labour supplied (either by quantity or quality) will fall, and as the supply falls wages will then rise again.

As Engels puts it, (Its Engels by the way that wrote the Condition of the working Class, not Marx)

“The history of these Unions is a long series of defeats of the working-men, interrupted by a few isolated victories. All these efforts naturally cannot alter the economic law according to which wages are determined by the relation between supply and demand in the labour market. Hence the Unions remain powerless against all great forces which influence this relation. In a commercial crisis the Union itself must reduce wages or dissolve wholly; and in a time of considerable increase in the demand for labour, it cannot fix the rate of wages higher than would be reached spontaneously by the competition of the capitalists among themselves.”

And Marx makes the same point,

“I think I have shown that their struggles for the standard of wages are incidents inseparable from the whole wages system, that in 99 cases out of 100 their efforts at raising wages are only efforts at maintaining the given value of labour, and that the necessity of debating their price with the capitalist is inherent to their condition of having to sell themselves as commodities. ... the working class ought not to exaggerate to themselves the ultimate working of these everyday struggles. They ought not to forget that they are fighting with effects, but not with the causes of those effects; that they are retarding the downward movement, but not changing its direction; that they are applying palliatives, not curing the malady. They ought, therefore, not to be exclusively absorbed in these unavoidable guerilla fights incessantly springing up from the never ceasing encroachments of capital or changes of the market.”

But, your point about the introduction of the Factory Acts etc, as a means of regulating competition is spot on. Marx quotes the letter sent by Wedgwood to Parliament setting out precisely this point where Wedgwood says that they recognise that competition is driving them to literally kill the goose that lays the golden eggs, but that without some form of regulation that same competition would mean each individual capital would try to gain advantage. As Marx puts it, what capital requires is a level playing field. Once you have different regulations in one country compared to another, you no longer have a level playing field, which is one reason big capital has always favoured the establishment of increasingly larger units within which to operate, first the nation state, and then the larger federations of states and other forms of trading bloc.

Within each unit, higher wages and better conditions favour that big capital relative to small capital, for the reasons Marx and Engels set out. One is, as you have described the need to maintain aggregate demand for the increasing volume of commodities to be sold. Fordism and Keynesianism was intended to provide a solution to that problem by tying annual real wage rises to even greater rises in productivity. Secondly, as Engels describes in the above work,

“And in proportion as this increase took place, in the same proportion did manufacturing industry become apparently moralised. The competition of manufacturer against manufacturer by means of petty thefts upon the workpeople did no longer pay. Trade had outgrown such low means of making money; they were not worth while practising for the manufacturing millionaire, and served merely to keep alive the competition of smaller traders, thankful to pick up a penny wherever they could. Thus the truck system was suppressed, the Ten Hours’ Bill was enacted, and a number of other secondary reforms introduced — much against the spirit of Free Trade and unbridled competition, but quite as much in favour of the giant-capitalist in his competition with his less favoured brother. Moreover, the larger the concern, and with it the number of hands, the greater the loss and inconvenience caused by every conflict between master and men; and thus a new spirit came over the masters, especially the large ones, which taught them to avoid unnecessary squabbles, to acquiesce in the existence and power of Trades’ Unions, and finally even to discover in strikes — at opportune times — a powerful means to serve their own ends. The largest manufacturers, formerly the leaders of the war against the working-class, were now the foremost to preach peace and harmony. And for a very good reason. The fact is that all these concessions to justice and philanthropy were nothing else but means to accelerate the concentration of capital in the hands of the few, for whom the niggardly extra extortions of former years had lost all importance and had become actual nuisances; and to crush all the quicker and all the safer their smaller competitors, who could not make both ends meet without such perquisites. Thus the development of production on the basis of the capitalistic system has of itself sufficed — at least in the leading industries, for in the more unimportant branches this is far from being the case — to do away with all those minor grievances which aggravated the workman’s fate during its earlier stages.”

And, in Capital III, Chapter 12, Marx provides the theoretical foundation for why this is. He demonstrates that where there is a general rise in wages, the consequence is that the price of production for those capitals with a higher than average organic composition falls, and vice versa. The only means by which this can arise is if capital flows out of the latter and into the former. Because big capital generally has a high organic composition and small capital a lowe organic composition, this provides the theoretical evidence for why a general rise in wages leads to this further concentration of capital described in practice by Engels. The supply of commodities produced by the former increases, causing their prices to fall, and contracts from the latter causing their prices to rise. But, this has a further consequence that, as Marx describes, because now a greater volume of capital is mobilised, and a greater mass of commodities are sold by this big capital, although the average rate of profit may have fallen, these big capitals may actually gain, because their mass of profit will itself rise as a result.

This of course, does not mean that individual large capitals will not seek to enjoy the benefits of high levels of productivity, where that can be had alongside lower wages, any more than as you say, and as Wedgwood pointed out, individual capitals would seek to gain individual benefit for themselves, despite the fact it was against their general interest. That is why the EU currently only provides a partial solution for big capital, because it does not rigorously apply common conditions on each member state, but also why breaking up an existing state, like Britain, or introducing such a degree of federalism as to allow component parts to set different rules, would increase this competition, and result in a race to the bottom that would be detrimental to workers interests.

[Deviation From The Mean]

Thanks for the straightforward answer!

We should bear in mind that in the non federalist UK there are huge disparities between pay rates, with the median pay rates for many areas of London being more than double that of the poorer regions.

Incidentally London and the South East have a much greater business density than the poorer regions, with the higher value businesses (Science, technical and professional) even more heavily concentrated there.

So the question to be asked, what is it about federalism, as Boffy claims, that would make big capital relocate to the poorer regions?

[Boffy]

"Thanks for the straightforward answer!"

You seem to be under the gross misapprehension that I was replying to you. I wasn't. I do not feed trolls like you. It was a reply to George.

[Deviation From The Mean]

Boffy,

You are under the gross misapprehension that my thanks wasn't dripping in sarcasm!

But for the stupid (i.e. you), thanks for the total bullshit.