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Monday, February 21, 2011


It would seem, if this argument is correct, that things are proceeding just as Marx anticipated. As capitalist social relations mature, the elements of socialist planning begin to develop deep within the corporation, which is truly the womb of capitalism. Why then are the prospects for social and economic justice so bleak? Why has the term “late capitalism,” once used by socialist theorists to describe what they confidently believed to be the death throes of the established order, now become a wry joke shared, with sighs and the rolling of eyes, by aging radicals like myself? Why have any signs of a true movement of the masses died out, to be replaced by an identity politics that is fundamentally assimilationist rather than revolutionary in its thrust? In short, if all is going as predicted, why aren’t we having any fun?

The answer, I think, is that along with everything that he got right, Marx got three big things wrong, with the result that the liberatory potential he saw in the internal contradictions of capitalism is nowhere in evidence today. Let me say something about each of these failures of analysis or prediction.

First, Marx completely failed to anticipate that the capitalist state would develop the ability to manage and, to some extent, to control the increasingly wild booms and busts that threatened to destroy the capitalist order. He quite presciently foresaw that the ever more rational organization of production within the firm would come into contradiction with the anarchic distribution of the market, resulting in crises of over-production and under-consumption. The great crash of ’29 was just what the good Doctor of Philosophy ordered, albeit too late to gladden his heart.

But Marx was convinced that capitalists, confronted with disaster, would be unable to coordinate their actions in order to save their skins. In an odd way, he was too much in thrall to the classical economic theory he had subjected to such a penetrating critique in Capital. It took imaginative theoretical and practical defenders of capitalism like Keynes and Roosevelt to see that with far-sighted fiscal and monetary policies, the state could sufficiently dampen the business cycle to enable capitalism to survive. To put the point differently, Marx, very much in common with the other economists of his day, failed to see how powerful the state had become under capitalism.

The pulse still quickens in the circles I frequent when the tech stock market bubble bursts or Paul Krugman forecasts a calamitous reversal in housing prices, the way old war horses flare their nostrils and stamp their hooves at the sound of distant trumpets. But the truth is that our corporate masters will never again allow a serious threat to the foundations of the economic house they have built.

Our mature capitalist economy is no longer the unplanned, unintended consequence of the playing out of market forces, for all the lip service that its apologists pay to “free enterprise” on festive occasions. Rational planning is as pervasive at the macro-economic level as it is within the firm. But that planning – far more sophisticated and nuanced than either Marx or the state planners of the Soviet Union could have anticipated – is securely within the service of private interests, not the public good.

The second obstacle to the development of a revolutionary working class movement has been the persistence of pre-capitalist passions and attachments that Marx was convinced capitalism’s invasive rationalization of economic life would weaken and ultimately destroy – nationalist loyalties, ethnic identifications, racial antagonisms, and religious faiths. The secularization of life seemed to be well under way in Marx’s time. The Catholic Church had lost its grip on public life in France, Germany, and Italy. The ancient antagonism of the urban and the rural was dissolving, as Marx had indeed predicted. And the ever-increasing mobility of both labor and capital bid fair to consign nationalist sentiment to public holidays and political speeches.

The optimistic confidence that class interests would defeat the irrationality of nationalism reached its height in 1914, as socialists world-wide – my grandfather among them – refused to believe that French and German workers would fight one another in the trenches at the behest of their capitalist masters. With the bloody refutation of that belief, something died in the heart of the socialist movement. To be sure, the unanticipated success of the Bolsheviks in Russia encouraged some to believe that despite all, the proletarian movement was on the march [though not my grandfather, who sided with Norman Thomas and the Mensheviks]. But the success first of the Soviet Union and then of Mao’s revolution in China, important as it was to the unfolding of the twentieth century, had nothing at all to do with the birth of socialism in the womb of capitalism.

In the United States, race had already opened a chasm in the worker’s movement that, in a revised form, persists to this day. When four million Black men and women walked out of slavery, prepared for the free labor market with agricultural, craft, and industrial skills that they had used as slaves to make the South rich, they encountered implacable hostility from white workers, whether immigrant or native-born. White workers until after the Second World War struck devil’s bargains with their employers, conceding labor peace and low wages in return for whites-only hiring practices. This fact, perhaps more than any other, doomed the American working class movement to eventual failure.

At this nightmare moment in recent history, little need be said about the persistence and intensification of ethnic and religious antagonisms throughout the world. Try as we may, we socialists can no longer cling to the hope that class interests will unite men and women across national, ethnic, racial, and religious divides in a vibrant revolutionary movement to replace capitalism with a humane, just, egalitarian social order. Capitalists are doing their part. Not only are they crafting the elements of rational planning that a socialist economy would require. They are in the forefront of efforts to put the divisiveness of race, ethnicity, nationality, and religion behind us, for these divisions are not good for business. It is the people who remain mired in self-destructive and self-defeating irrationality.

Marx’s third and most serious mistake concerns the direction in which the labor force evolved as feudalism gave way to early capitalism, and then to the mature capitalism we see today. In the middle of the nineteenth century, when Marx was doing the British Museum research on which his hauptwerk was based, one of the most striking changes taking place in British society was the destruction of the old crafts – weaving, spinning, woodworking, and the rest – and the incorporation into machinery of the skills they once required. In late feudal and early modern times, a working man was known by the trade he plied, learned in a long apprenticeship and symbolized by the kitbag of tools he brought with him to the job. The complex social structure of crafts left indelible marks on the family names that so many Americans bear today – Wheelwright, Carver, Chandler, Taylor, Cartwright, Schneider, Schreiber, Weaver, Shepherd, Farmer, Smith.

Capitalism ate away corrosively at the craft tradition, deskilling artisans and turning them into a homogeneous pool of semi-skilled workers who could master the skills of a factory job in a few weeks and were thus available to be moved easily from job to job by the fluctuations in the market demand for industrial labor. Marx saw this progressive homogenization of the labor force as the correlate to the process by which small independent entrepreneurs were being crushed by competitive forces and absorbed into larger and larger firms driven to expand by a need to achieve control over their input and output prices. He foresaw a world in which a united industrial working class would confront concentrated capital, until finally, when a major crash had fatally weakened capital, labor would seize control of the means of production and substitute socialist planning for capitalist anarchy.

It was not only an inspiring dream, at least for some of us. It was also a quite plausible projection of trends that were working themselves out powerfully in Marx’s day. But it was not to be. On the side of capital, as Marx anticipated, relentless concentration did take place, leading to the world of vast multi-national conglomerates with which we are all familiar. To be sure, a subordinate domain of small business flourished, rather like the flora that live under the soaring canopy in an Amazon rain forest. Nevertheless, Marx got that part of the future right.

It is on the side of labor that things have not progressed as Marx imagined they would. For a time, the growth of industrial capitalism did indeed produce a vibrant labor movement that evolved very much as Marx expected. First individual factories, then entire industries, finally entire national labor forces were organized, giving rise in the United States to the American Federation of Labor and the Congress of Industrial Organizations, while in Europe the labor movement was so successful that it was able to create and sustain major political parties.

But as industrial capitalism gave way to a complex mix of industrial and service firms with huge, bureaucratically managed assemblages of employees, the leveling and homogenization ceased. There came into existence a pyramidal hierarchy of job categories with sharply unequal wage, salary, and compensation schedules. Instead of a world in which the propertyless masses sell their labor and are poor, while the owners of capital hire labor and live on the profits from this unequal exchange, we see today an economy in which even the very rich, by and large, are salaried, and capital is owned by share holders who exercise little or no control over what is nominally their property. Indeed, comfortably compensated and securely tenured economists like Paul Samuelson, bemused by the reversibility of their equations, have taken to saying that it makes little effective difference to the economy whether capital hires labor or labor hires capital.

This highly unequal allocation of the rewards and burdens of labor has undermined that solidarity on which Marx was counting. Steel workers, miners, and textile operatives could forge some degree of unity, despite their geographic dispersion and the many differences in the nature of their jobs. Even hospital and hotel workers, secretaries and fast food workers, could find some common ground on which to stand in their struggle against the exploitation inflicted on them by capital. But whatever theoretical connections there might be between them and lawyers, middle managers, and tenured college professors, the gap in the salaries and conditions of labor between the two groups, the utter disparity in their life experiences and life chances, have made a fruitful solidarity out of the question. Workers have grown progressively less unified, until at long last, Organized Labor has come to be, and to be seen, as nothing more than an interest group, on a par with, but often less powerful than, gun owners, retirees, and fundamentalist Christians.

All of us are familiar with this world, for it is, after all, our world, and we understand intuitively that our life chances are determined not by whether we own the means of production, but rather by where on the pyramid of jobs we end up. It is worth taking a moment to look at a few facts and figures, simply to remind ourselves just how steep that pyramid is. I am referring not to the much-discussed explosion of compensation at the highest executive levels, but to the deeply entrenched inequality all up and down the pyramid. [These numbers come from Bureau of Labor Department tables, and date from 2004. I have not bothered to update them, but the thrust of what I am saying remains correct.]

In the town of Amherst, Massachusetts, where I lived for many years, a teacher at the Amherst Regional High School with a Master’s Degree will, after fourteen years, earn $61,353 a year. If her husband is a fireman in town who is also trained as an EMT, his salary will go up to $45,000 a year. Their combined family income will then be larger than that of ninety percent of the families in the United States. Stop and think about that for a moment: a high school teacher and a fireman. If the teacher had married a professor at the University, by the time he had risen to the rank of full professor and served in that rank for a while, he might well be earning about $140,000 a year. Their family income would then be larger than that of roughly 97% of all American families. By any reasonable classification, they should count as among the rich, and yet all of us are so conditioned by the meretricious images of the mass media that we would unthinkingly describe them as a “middle-income family.”

Not surprisingly, the numbers are much worse for African-American families. Now that the federally mandated minimum wage is on its way up to $7.25 an hour, a Black husband and wife working fulltime minimum wage jobs can look forward to the time when their annual household income of $29,000 puts them solidly in the Black Middle Class, with more than forty percent of Black households doing less well.

T he shape of the income pyramid in America has changed very little in the past century and more, save to become somewhat steeper. This in itself is odd, when we reflect that over that period of time America has been transformed from primarily an agricultural economy into to an industrial economy, then to a service economy, and now to an information age economy. One might plausibly have expected that so radical a series of transformations would work some alteration in the pattern of compensation, but it has not.

Apologists for capitalism, who are now as common as houseflies, like to offer two connected explanations for the inequality in wages and salaries, which taken together are intended as a justification as well. The first rests on a misinterpretation of a famous eighteenth century mathematical theorem, the second on a common logical fallacy. Mathematics first.

Leonhard Euler, the great Swiss mathematician, proved a theorem about linear homogeneous functions that was, in the nineteenth century, given an important economic interpretation. The theorem was construed as saying that under certain conditions, the wages paid to workers in a free and competitive labor market exactly equal their marginal contribution to the output of the firm for which they work, or, as it is sometimes called, their marginal product. Thus, if a vice-president in an executive suite makes more than a secretary in the steno pool, that is because the vice-president contributes exactly that much more to the productive activity of the firm. It would be both unjust and inefficient to take away some of the executive’s pay and give it to the secretary, even though they are both, no doubt, nice people and hard-workers.

The problem with this rationale for unequal pay is that it turns out, upon closer inspection, not to apply to any known or even possible capitalist system. In the first place, the theorem holds only for economies whose production function is linear homogeneous [assuming that it even makes sense to speak of the production function of an entire economy], and as is easy enough to show, this is equivalent to saying that the economy is in long run equilibrium. But as Marx pointed out, and as every economist since has reaffirmed, capitalism is never in long-run equilibrium. A capitalist economy is always engaged in what Joseph Schumpeter, in a famous phrase, called creative destruction. Furthermore, it follows directly from Euler’s equation that a firm with a linear homogeneous production will, if it pays each of its employees his or her marginal product, make a zero profit, and a firm regularly making zero profit will of course cease to exist.

All of this is quite well known to all economists, but it has not dissuaded them and their epigones from wrapping themselves in the sanctity of mathematics whenever proposals for wage and salary equalization surface.

So much for mathematics. Now logic.

When economists are asked why some employees are so much more productive than others, and hence deserving of such inflated compensation, their standard answer is education, or, as they sometimes say in an attempt to make the answer sound more impressive, human capital. Actually, that last sentence inverts the real order of explanation, and thus participates in the ideological rationalization that I am attempting to debunk. Let me restate the point: When asked to explain the striking inequality in compensation schedules, economists begin by assuming that the inequality must be justified, for to think otherwise would be to call into question both the foundation of American society and their own comfortable compensation. Those of us at the top of the income pyramid must have a much greater marginal productivity, they conclude. And how can that in turn be accounted for? Education.

Now, it is demonstrably true that in America today, your level of education [or, to be more precise, the number of years of schooling you have completed – not at all the same thing] powerfully affects where on the income pyramid you end up. Indeed, it may be the single most significant determinant. There are very few MBA’s working on the loading dock, and very few K through Twelvers in the executive suites.

But this fact does not imply that the shape of the income pyramid itself is in any way determined by the levels of educational attainment in the work force as a whole. If you have a college degree, your chances of climbing up the pyramid at least to the middle levels are quite good. But if everyone gets a college degree, the pyramid will not flatten out, because there are only so many jobs at the middle level.

To think otherwise is to commit what logicians call the Fallacy of Composition, which is simply the mistake of thinking that because something is true of each member of a group, it can be true of them all. Each of us, we may suppose, can with hard work and determination, be above average, but only in Lake Woebegone can all the children be above average.

Because the American economy is so large, it is easy to lose sight of this simple truth. For each individual, or for all immigrants, or for all African Americans, or even, within limits, for all women, it is indeed true that greater educational attainment will tend to lead to higher compensation, but that is only because the individuals or the group will over time displace some of those in the favored slots. If all the applicants for jobs at a corporation present themselves to the Human Resources Office with MBA’s, the Board of Directors will not terminate the positions of secretary, mail room clerk, and claims adjuster and make everyone a senior manager!

There is one way in which a dramatic educational upgrading of the entire workforce might conceivably trigger a flattening of the entire income pyramid. With better prepared workers available, corporations might shift to different and more profitable production techniques, and those new techniques might result in an array of job positions with more equal associated compensations. Economists would say that the positions defined by the new production function had more equal marginal productivities, which, as we have seen, is nonsense, but nevertheless, the end result might be a flatter pyramid.

Is this likely to happen? Well, for more than one hundred years, the average level of educational attainment in America, as measured by number of years of schooling completed, has been rising. The level of education demanded by the production techniques and job specialties in the American economy has risen correspondingly. And the shape of the pyramid has remained essentially unaltered. Literacy, not to mention computer literacy, is today required even by such poorly paid jobs as department store clerk. And yet, no flattening of the pyramid can be discerned.

What then does explain the shape of the income pyramid? A number of bright economists, willing to challenge the received wisdom, have been puzzling over this question for several generations. More than thirty years ago, Lester Thurow, the MIT economist who served there for a while as Dean of the Sloan School, published a little book called Generating Inequality that took a fresh look at the question. But although it is possible to give partial explanations, especially of an historical sort, for the pattern of compensation in this or that capitalist economy, the seeming permanence of the steep pyramid, its imperviousness to even the most striking changes in the world economy, remains a mystery.

Thus, there is little prospect for the labor solidarity on which a successful socialist transformation must be built. It is now the best of times and the worst of times. Economic rationality marches relentlessly on, while poverty and inequality harden into permanent injustice, and racial, ethnic, national, and religious rivalries tear the world apart.

What can we anticipate for the future? What will my grandfather’s great, great grandson, my grandson Samuel, inherit as he grows to maturity? The impetus within corporations to substitute economic planning for subservience to market forces will strengthen, as the managerial class responds to the imperatives of institutional rationality. Meanwhile, the obscene gap between the gilded life chances of the fortunate and the life-threatening poverty at the bottom of the world economy will persist and come to be seen as an inevitable concomitant of the rational workings of the market.

There will always be class traitors like myself who rail against the inequality from which they personally benefit. But though our excoriating tracts may bring us tenure and advancement, the revolutionary transformation they celebrate will seem as fanciful as the Chronicles of Narnia.

What then is the future of socialism? If socialism is the substitution of rational planning for the anarchy of the market, it is already upon us. If socialism is the achievement, at long last, of justice and equality, it is a dream that has been aborted in the womb of the old order.


Mo said...

Great post! I wish more radical socialists would critically examine their own beliefs/ideology like you do.

Mark Povich said...

Great little series. Have you read John Roemer's little book on coupon socialism by the same name? I'd love to know your thoughts on it.

James Camien McGuiggan said...

This is just to say I've enjoyed this series of posts (and that more generally I enjoy this weblog).

Robert Paul Wolff said...

Thank you all. I have not read Roemer's book -- indeed, I did not know aboput it until you mentioned it. I must hunt it up and take a look. He is one smart cookie!