Exploitation in the lab

Experimental evidence suggests that Marx was right.

In Capital, Marx describes the selling of labour power thus:

He, who before was the money-owner, now strides in front as capitalist; the possessor of labour-power follows as his labourer. The one with an air of importance, smirking, intent on business; the other, timid and holding back, like one who is bringing his own hide to market and has nothing to expect but — a hiding.

And here's a recent paper by Nikos Nikiforakis, Jorg Oechssler and Anwar Shah:

We have designed a game in which exploitation can result from the hierarchical relationship between players and, in particular, from the fact that the senior worker has the power to coerce a junior worker into exerting high levels of effort. Using a laboratory experiment, we find that senior workers often attempt to exploit junior workers.

This is not an isolated finding: it's consistent with an earlier paper by Ernst Fehr and colleagues.

The question is: what is the external validity of these laboratory findings?

On the one hand, Marx's critics - following Coase (pdf) and Williamson - might argue that hierarchy increases aggregate output and this benefits workers sufficiently to offset opportunistic exploitation. This, however, runs into the problem that cooperative firms can be more efficient than more hierarchical ones.

On the other hand, though, one might argue that the Nikiforakis, Oechssler and Shah paper actually understates the problem. In lab experiments, the payoffs to both parties are small which means that exploitation is mitigated by a norm of fairness. In the real world, however, the payoffs to exploitation are big enough to overwhelm that norm. This is especially the case to the extent that narcissistic bosses' over-inflated sense of entitlement might mean that they feel entitled to extract big rents.

Now, there was a time when the Labour party had an answer to these problems. In the post-war period, it thought that full employment and strong trades unions would give workers a form of countervailing power to resist the tendency for hierarchical capitalism to generate exploitative rent-seeking. Today, though, it's answers - insofar as it has them at all - seem rather weaker.  

Comments

[Xavier Trapnel]

You consistently push the benefits of workers' coops, but, John Spedan Lewis types are v. uncommon. absent any realistic way of making them more common, we'll never know and you'll never be proved wrong. Inclusive coops (i don't count barristers' chambers) seem to be so rare within capitalism that we really can't know very much about their pros and cons.

Or is full employment + private sector unions + stakeholder capitalism a good enough substitute for coops? in which case can't we forget about the coops?

[Luke]

Xavier, there are thousands of professional service firms which are workers' coops of a sort. Outside ownership is rare (and illegal in many countries). They vary in size from two to thousands of people. Of course it's rare that *all* staff are owners/partners, but a significant proportion can be, and they own *all* the business. Plenty of junior bods aspire, realistically or not, to become partners.

So there's plenty to study - both as to their pros and cons and why equity in them is becoming more tightly held.

PS I agree about barristers' chambers - the legal structure is different, and they're more like a load of small businesses in a shared office.

[Xavier Trapnel]

Luke, but law/accountancy firms aren't very egalitarian. Also, that model only seems to apply when the senior staff have lots of power and there is lots of 'human capital' and not much real capital

[e]

I think, in fairness, it would be more correct to see full employment and strong trades unions as post-war Labour achievements; not just something they once believed in. But all that was prior to the failed, In Place of Strife initiative, and subsequently: Thatcherism + New Labour. Those were the days: when people like me studied something called Industrial Relations; economics was couched in a language most people understood and the possibility of people being stigmatised for individual failings, blamed for the countries woes, and consequently fined and pauperised, was unknown.

[Keith]

off course abolishing the anti union laws and renationalisation of large parts of the economy, starting with natural monopoly utilities, would not be the same as all workers being self employed cooperators. But that kind of policy might greatly increase worker well being by raising wages and improving conditions including restoring proper pension rights for millions of people. It would be a start and would not be incompatible with policies to promote cooperation as well.

The dominance of bosses over their workers goes along with the erroneous theory that you can have a good economy where the vast majority are constantly impoverished so a minority can increase their profits and incomes. As if the majority of households and the economy had no connection. And "The Economy" exists in outer space millions of light years away from all the human beings making up the living society. A bloodless and factually incorrect idea. Politicians, not just conservative ones, and lots of economists and financiers seem wedded to this conception of "The Economy" which may explain why the real economy is in a mess despite all the attempts to deny it.

[Noah Carl]

Chris - in your opinion, which current laws/regulations in the UK would we need to introduce or repeal in order to increase worker ownership of firms?

[chris]

@ Noah - good q. I think the main obstacle to worker ownership is a capital constraint. Two things that might alleviate this would be preferential terms from a new state-owned investment bank and/or getting preferred bidder status when govt services are outsourced.

[Blissex]

«full employment and strong trades unions would give workers a form of countervailing power to resist the tendency for hierarchical capitalism to generate exploitative rent-seeking.»

The difficulty with that plan was that some of the trades unions tried to become insiders engaging in exploitative rent seeking of their own, and that made them and the whole trade union movement deeply unpopular, and that was skilfully exploited by existing insiders.

That may be because In the UK in particular "insiderism" has been the main or only road to riches and status for over a thousand years, and I suspect that the yearning to be an insider is deeply ingrained in UK culture, more so than our blogger's yearning for equality and mutual respect.

As I often remark the "conservatory building classes", the middle income swing voters in marginal seats in the South East don't want good jobs, pensions, full employment, equality, they want to feel like being "upstairs" ladies of quality or lords of the manor.

[Blissex]

«I think the main obstacle to worker ownership is a capital constraint.»

But suppose "workers" had the capital to invest in funding their own co-op employer.

Given that there is an alternative that returns 160% gross profits per year for decades, thanks to huge leverage and government sponsorship, why would they ever invest their capital in that co-op to earn much lower, much riskier profits?

Workers in the UK have been saving and borrowing to invest huge amounts of capital, but in property speculation that returns lots of profits, not in productive co-ops that probably would be far less profitable and with a much higher risk of failure.

[diptherio]

Xavier, Emilia Romagna in Italy has a very good, viable, scalable model: https://www.scribd.com/doc/8311289/emiliaromagna

[Magpie]

Chris,

I just dug this quote and I think you may find interesting John Bates Clark (of all people!) on "exploitation":

"The welfare of the laboring classes depends on whether they get much or little; but their attitude toward other classes—and, therefore, the stability of the social state—depends chiefly on the question, whether the amount that they get, be it large or small, is what they produce. If they create a small amount of wealth and get the whole of it, they may not seek to revolutionize society; but if it were to appear that they produce an ample amount and get only a part of it, many of them would become revolutionists, and all would have the right to do so. The indictment that hangs over society is that of 'exploiting labor.' 'Workmen' it is said, 'are regularly robbed of what they produce. This is done within the forms of law, and by the natural working of competition.' If this charge were proved, every right-minded man should become a socialist; and his zeal in transforming the industrial system would then measure and express his sense of justice. If we are to test the charge, however, we must enter the realm of production. We must resolve the product of social industry into its component elements, in order to see whether the natural effect of competition is or is not to give to each producer the amount of wealth that he specifically brings into existence."

http://www.econlib.org/library/Clark/clkDW1.html

He wasn't too far off the mark, in an orthodox Marxist sense.

Cheers

[chris]

@ Magpie. Thanks. Great find. This bears on something I'm planning on writing - that Marxist and conventional economists are closer to each other than many believe.