I'VE BEEN THINKING

While I was taking my morning walk today, I found myself puzzling over something that has concerned me for a very long time, namely the relentless increase in inequality in America.  The stagnation of wages and income for the great majority of Americans, coupled with the staggering explosion of wealth and income for those at the top, has been going on for several decades, through good times and bad, under Democratic and Republican administrations.  Some of this transformation of America into a Banana Republic is surely the consequence of deliberate policies -- the reduction of tax rates for the wealthy, the attack on labor unions, the fraying of the social safety net.  But it seems clear to me that something deeper is at work.

In this post, I am going to make some suggestions, perhaps as a way of getting a discussion started.  I want to emphasize that I really do not have the professional command of the data that would be required to test my intuitions, so all I shall be offering is a mixture of impressions and anecdotes -- not at all a sound basis for economic analysis.  To state my conclusion at the outset, it looks very much to me as though Marx's basic analysis of the "laws of motion" of capitalist economies was correct in its essentials, and that we have been misled into thinking that his analysis is outdated and inapplicable for two reasons:  first, because the processes he identified are taking much longer than he anticipated, and second because those processes are unfolding on a global scale, not within individual nations.

Marx's story is really quite simple.  It can be summed up in seven propositions: 

First, that capital relentlessly revolutionizes the system of production in pursuit of the highest rate of return on investments; 

Second, that large capitals absorb small capitals, producing larger and larger firms;

Third, that capital endlessly seeks to replace high wage labor with low wage labor and to replace labor of all sorts with machines;

Fourth, that the interests of capital and labor are necessarily opposed, because, to put it in a phrase, the wage rate and the profit rate vary inversely;

Fifth, that the centralization and expansion of capital unintentionally results in a more and more self-consciously organized, unified, and militant labor force; 

Sixth, that the irrationality of the system of distribution combined with the ever greater rationality of the system of production generates more and more severe crises of overproduction and underconsumption; and finally

Seventh, that faced with these periodic crises, capital will be unable to respond collectively and rationally to maintain its control over the means of production.

Let us look at each of these propositions in turn.

The first proposition, I take it, is now universally acknowledged to be true.  As we Marxists know, but as the rest of the world tends to forget, Marx thought, and said, that capitalism is the most revolutionary force ever set loose upon the world.  Enough said.

Marx's second proposition is also obviously true, with a caveat.  The emergence of vast multi-nationals confirms Marx's expectation that larger and larger agglomerations of capital would develop, but he seems not to have appreciated two exceptions, or additions, to this thesis.   First, technological innovation very often takes place in small firms, rather than in large ones, resulting in the appearance and growth of new behemoths virtually from scratch -- Microsoft, Apple, and so forth.  Second, rather like the rich underbrush that flourishes in a tropical forest beneath the canopy of huge trees, even as multi-nationals grow ever larger, a complex flora of small and medium-sized firms continues to exist, and although any one of those firms may be threatened with absorption into a large firm, the system of small firms itself is not threatened with extinction.

The third proposition is central to my remarks today, and unlike the previous two, it is hotly contested by the champions of capitalism.  Getting clear about what is going on here will take some discussion.  Marx thought that he was looking at a dumbing down of labor skills, with the replacement of traditional crafts by machine production.  Long established trades requiring lengthy apprenticeships were being killed as the skills of the weaver, the spinner, and the carpenter were incorporated into machines that a semi-skilled operative could learn to attend and run in a matter of weeks or months rather than years.  In Marx's story, a large "reserve army of the unemployed," forced by desperate poverty to take industrial jobs at reduced wages, drives down the pay of the former skilled laborers, with the result that workers cannot for long rise much above a subsistence existence [always recognizing, as Ricardo pointed out, that what counts as "subsistence" is socially and historically as well as biologically determined.]

But technological innovation, modern apologists for capitalism claim, has completely altered this dynamic.  Capitalism more and more needs skilled workers whose educational attainments suit them for the complex and demanding tasks of the modern production of goods and services.  This is especially the case in the service sector, which in advanced capitalist economies comes to dominate the older manufacturing sector.  The "human capital" accumulated by workers through education requires employers to pay higher wages for their labor, with the result that a large and well-established middle class of white collar employees comes to dominate advanced capitalist societies.

There is no doubt that this claim was true for a while -- and by a while I mean several generations, far longer than Marx thought it would take for capitalism to evolve into unmanageable crises.  But if we look at what has been happening in the last thirty years or so, we see that Marx's basic intuition was correct.  It is only the scale and speed of the processes that he misgauged.  [Please recall that I am looking at this entire matter from the perspective of the United States,  Other national economies are at different stages in the process of evolution.]  Capital's first response to the rise and seeming inflexibility of wages was outsourcing.  There is indeed a reserve army of the unemployed that drives wages down toward subsistence -- it just happens to be located in parts of the world that we do not consider part of the American economy.  But capitalism knows nothing of national borders, considering them merely temporary market imperfections.  Manufacturing jobs are relocated to Asia, to Latin America, to Africa, as innovations in transportation, accounting, and production make it possible to distribute the several segments of a complex manufacturing process to any place in the world where labor is cheap enough.

For a while, this development seems merely to confirm the comforting judgment that education is the royal road to secure high wages, but further technological innovations make even the skills acquired by education capable of being outsourced.  All of us have had the experience of calling the help line of a bank or credit card company, only to find ourselves talking to someone in India who does a perfectly adequate job of fielding our questions [albeit with a slightly disorienting accent] at a fraction of the cost of an American employee.  But some of you may not be aware that when you have an X-Ray or MRI or CT Scan, the actual  reading of the results may also be performed halfway around the world, also at a fraction of the cost.  Universities are steadily driving down their labor costs by substituting adjuncts for tenure track faculty, and when even that does not lower labor costs sufficiently, on-line education stands ready to destroy one of the few remaining decently paid professions.

I shall take the fourth proposition as manifestly true, for all that this invocation of "class warfare" triggers hysterical responses from Republicans and Democrats alike. 

The fifth proposition, alas, has turned out to be false, or at least only marginally and fitfully true.  I have said a good deal about this in my paper, "The Future of Socialism," available through this blog at box.net, so I shall not repeat those observations here.  Suffice it to say that nothing remotely like class consciousness and solidarity unites Chinese factory workers, Indian call center workers, and American hospital or hotel employees.  Would that it did!  My declining years would be a great deal happier if that were so, but it simply is not.  Culture, language, religion, ethnicity, race, and sheer distance work to much against the development of anything that could ever be called a "class for itself" as well as "in itself."

The sixth proposition seems to me to be true, with a revision to take account of purely financial crises, of the sort we are still suffering from.  I really do not have the knowledge to make any useful projections of the likelihood and character of future crises, but it certainly does not look like smooth sailing for capitalism. 

As for the seventh proposition, capital appears to have some capacity for learning from its crises, although that may be overbalanced by its skill at generating ever-more intractable sorts of crises not amenable to the fixes crafted for earlier crises.

The general conclusion I draw from this quite rudimentary and inadequate analysis is that the growth of inequality in America is systemic, long-term, and the result of the basic "laws of motion" of capitalism.  Hence neither education nor a revision of the tax laws nor even the mobilization of workers is likely to have a significant impact on that tendency, for all that I am deeply committed to all three of those palliatives, especially the third.