Tonight’s diary was inspired by a several things. One was an excellent diary discussing attempts by foreign multinational corporations (MNCs) to undercut the Haitian government’s attempt to pass a 61 cents/hour minimum wage (http://www.dailykos.com/...). The fact that $0.61/hr is below what could support a family of 4 in Haiti raises an additional point concerning social subsistence that also needs to be addressed. Another inspiration was a discussion with a friend that described a problem that her friend that works as a carer was having. She was told that she had to accept a wage cut (she was already at the legal minimum wage level); when she refused she was told that others would work for less. I have not checked the veracity of the situation (which most certainly is a violation of the law and told her to tell her friend to call her union and go to citizens’ advice bureau as this is a legal matter); rather, its importance lies in what the situation means rather than the truth in this particular instance.
In trying to explain the situation in Haiti and the attempt to subvert the legal minimum wage in an advanced capitalist country, the term exploitation comes to mind. The problem lies in explaining what we mean by economic exploitation. Is economic exploitation a relative contextual issue (e.g., wage differentials between men and women or between whites and people of colour) or is it an endemic general problem in the system as a whole? I would argue the latter with the issue of relative exploitation part of the general problem.
Working Class demands such as “a fair day’s pay for a fair day’s work,” “equal pay for equal work,” “equal wages for comparable work” or even the more extensive demand of the Socialists in the 19th century of “the right of the workers to the whole of the product” only begin to approach the question of exploitation from the manner in which it manifests itself as wages. Moreover, these demands are actually implying something far more fundamental relating to the functioning of the capitalist economic system. These questions relate to not only the distribution of the product between workers and capitalists as wages and profits, but ultimately to capitalist property relations themselves (in terms of the ownership of the means of production and the ownership of the final product).
An additional question which is related is why did the Luddites view the introduction of machinery by capitalists as a threat to their employment and their actual livelihoods? What economic imperatives underlie the introduction of machinery and technology and how do they impact upon workers? In order to understand exploitation of labour, we need to look at production, the creation and ownership of the product and then finally to its concrete manifestation in the distribution of the product as wages and profits.
I) Capitalism and Exploitation
In order to understand economic exploitation, we need to leave behind the mainstream economic theory. We need to return to economic and political arguments that were part and parcel of economic theory prior to the creation of Neoclassical economic theory in the 1870s and its control over economic discussions. Economic exploitation (as opposed to social and political exploitation of the church, aristocracy and government that characterised the early criticisms of the system in the writings of William Cobbett and Henry Hunt) was deeply rooted in the discussions of the working class movements of the 19th and 20th centuries and in Anarchist, Marxist and Socialist arguments. Given space constraints, I will be concentrating on Marx’s argument, but I would strongly recommend that you read the diaries I have written in the past on Thompson and Hodgskin (http://www.dailykos.com/...; http://www.dailykos.com/...) as much of Marx’s argument is derived from discussions of early socialists and anarchists as well as from Adam Smith and David Ricardo.
Unfortunately, one problem in understanding these arguments is that they run contrary to the way in which we have been taught to think of economic issues and will require a shift in the way we approach things. It will also require some definitions to explain the argument.
II) Marx’s theory of exploitation
Following Marx, I am going to start with a simple abstract model and then make it progressively more concrete. However, I am going to begin in a different manner than Marx. Marx begins with labour and exchange value (and the interrelationship between these things), I will start by explaining the circular nature of production, exchange and distribution in the capitalist system and then link that back to labour, the production process and then on to distribution.
I will not address the labour theory of value nor its relation to prices of production and will try to conduct the discussion in physical quantities whenever possible for the simple purpose of trying to avoid a further complication to the discussion. So, what I am maintaining is the idea of a labour foundation or source. This is an enlightenment idea whereby it is the deliberate use of labour that is responsible for the creation of things; the manner in which to homogenise different types of labour (that is the notion of socially homogenous labour time) and commodity value (aka, the labour theory of value or the labour determinant of value) is necessary if we want to calculate the rate of exploitation, but is not strictly necessary to explain the exploitation of labour in the capitalist economic system.
A) The circular nature of production:
A way to look at production in a system is to view the interrelationship between what is produced and consumed as part and parcel of the continued economic reproduction of the system. In order for the system to reproduce itself and for production to continue at the same level in the next production period, at the least we need to ensure that what is produced and consumed in this production period is available for the next period of production to begin again.
How is that ensured? Well, what we produce needs to be able to feed and ensure the reproduction of the working class and whatever raw materials and intermediate goods we used up in production need to be produced for the next period of production (we also need to cover depreciation and the amortisation of fixed capital).
In the context of the reproduction of the economic system as a whole, we can distinguish two things:
1) Simple reproduction: simple reproduction of a system occurs when the exact amount of output produced is simply sufficient to cover the reproduction and replacement of what is used up in the production process; it includes covering the reproduction of the labour force and the capital used up in production so that we can begin production at the same level in the next production period. There is no surplus produced in this model, it is a subsistence economy (for the more mathematically inclined, see Sraffa’s Production of Commodities, ch. 1)
2) Expanded reproduction: occurs when we have not only produced enough to replace the system at the exact same level, but an additional amount beyond what is needed for exact reproduction of the system. This is economic growth and it is the normal manner in which the capitalist system operates (unless it is breaking down). This means that a surplus product is produced over and above what is needed to feed producers and ensure their reproduction and replace capital used up in production.
Depending on the system, this surplus product can be shared amongst producers for the purposes of consumption and/or reinvested to continue to increase the size of the output and create the possibility of continued economic growth of the system.
In the context of the capitalist system, private ownership of the means of production and distribution means that the surplus product is no longer controlled by the direct producers. The division of the surplus as wages and profits between capitalists (owners and controllers of the means of production and surplus product) and workers depends on the power relations in the system. The weaker the labour movement, the higher the level of unemployment, the stronger government supports the capitalists, the more of the surplus product goes to the capitalists and vice versa. What is essential for the system to continue is the production of a surplus product over and above the replacement of goods used up in the previous period.
B) Production and Exploitation
Exploitation begins in the production process and is realised in exchange and distribution. What does that mean? It means that exploitation arises in the production of goods and services. However, that is not the end of the discussion. If the goods are sold at a price over and above their costs of production (so that the surplus is realised), that surplus product is manifested as profits and a surplus portion of wages in a capitalist system.
How much of the surplus product goes to profits and how much of it is shared with workers depends on power relations in the system, specifically the relative strength of capitalists and workers.
We can think about the process of reproduction of the system on the level of the individual working day. Workers spend their day labouring, they have sold their ability to labour (not the labour itself unless they are slaves) in exchange for their wages. Given the production of a surplus (which is necessary for the creation of profits) more labour than what is needed to produce the goods that satisfy their own needs and replace what is used up in production is necessary in order to ensure the creation of a surplus product.
What goods and services workers have enabled to be produced (as even in an age of automation, human labour is necessary for the production process and humans are necessary to produce automatons; the simple horror that you invent something and then are forced to build something that is designed to replace you in the production process is impressive) is over and above what they receive as wages (either in terms of commodities or in terms of the money amount of their wages). That means that they have worked more hours than are necessary to cover their own necessary subsistence and reproduction. These hours have been used to produce the surplus product. A way to think about it using the notions of simple and extended reproduction is that the simple reproduction portion is done in part of the working day in each industry; the rest of the day is devoted to the creation of the surplus product which goes to form profits and the surplus portion of the wage (if it exists).
We can divide the working day into two parts: 1) necessary labour time in which the workers wages (and the reproduction of the system) are covered; and 2) surplus labour time in which the product over and above the costs of production are produced.
C) Production of the Surplus Product
To ensure the possibility for the creation of profits, it is necessary to increase that portion of the working day in which the surplus product is produced. Historically, there are two ways in which this has occurred: 1) extend the length of the working day (the production of absolute surplus value, ASV) and 2) shorten the amount of time it takes to produce the portion of the product that covers workers (the production of relative surplus value, RSV).
The extension of the working day is the method that historically was initially used to produce the surplus product, but this only works where there are no legal measures to prevent the extension of the working day. However, in most advanced capitalist countries, working class political and economic agitation ensured that a cap was put on the length of the working day; as such, people could no longer be forced to work more than a certain number of hours each day (see for example, the 10 hour working bill in the UK).
The production of relative surplus value can be done by decreasing the number of hours required to produce workers consumption goods and hence the amount of time taken to produce the commodities that cover wages (so that the cost of wage goods falls). This occurs by introduction of technology that decreases the amount of the working day devoted to ensuring the production of goods destined for workers consumption.
Alternatively and concurrently, introduction of machinery leads to increased output done in a faster period of time, the portion of the day devoted to necessary labour and replacement of goods used up in the production process (in industries in which this machinery is introduced) is decreased and more time is available for production of surplus.
This led to further attempts to decrease the amount of time needed to produce workers consumption goods and to reduce that portion of the working day spent in covering the replacement and reproduction of labour and what is used up in production. The introduction of machinery and changes in the methods of production lead to decreases in the amount of time needed to produce a good. Mass production increases vastly the amount of goods that can be produced in less time with relatively less labour. As such, introduction of cheaper methods of production and raw and intermediate goods for more expensive ones all are part and parcel of an attempt to decrease costs of production and enable higher and higher quantities of surplus to be produced and available for realisation as profits. One important method is the deskilling of labour where it can be done: the replacement of artisan hand-loom weavers by the power-loom which uses unskilled and hence cheaper labour in production not only increases quantity of output, but reduces costs substituting cheap unskilled labour for artisan labour. The breakdown of the production process into more simplistic deskilled tasks replaces skilled labour, saving costs, time, and increasing output.
D) Exchange and Distribution
1) Exchange and Realisation
While exploitation derives from production, it is manifested and concretised in exchange and distribution. The surplus product is produced in the production process, but unless the goods are sold at a price over and above costs of production and reproduction, that surplus product remains unrealised. This means that the goods need a market in which they can be sold at a price so that the surplus product embodied in the goods actually comes into existence.
The need to ensure realisation of this surplus product embodied in commodities is what underlies the development of the domestic market and the justification for higher wages on the part of people like Adam Smith; it also forms an essential part of the argument put forth by Keynes and Kalecki in their principle of effective demand. Ensuring that workers have sufficient income to purchase these commodities is what ensures that capitalism continues to function. It is the effective demand of the majority that ensures that profits are realised that goods produced are sold at a price whereby that surplus value contained in them actually exists. The possibility of realisation crises due to underconsumption (or overproduction) also framed the discussion of imperialism as advocated by Rosa Luxemburg on the need for creation of markets for goods in colonies and peripheral capitalist economies.
How can it be ensured that goods produced are sold so as to realise the profits embodied in them? Following the Great Depression and the real threat posed by organised workers movements (both reform and revolutionary), things had to change. Given continual economic growth, wages and profits could continue to rise together. The system is not endangered if workers wages increased commensurate with increases in productivity as long as the economic growth is ongoing. Moreover, rising wages ensured continual economic growth; giving workers in the advanced capitalist world the ability to purchase the goods and services produced by the system provided the realisation of the surplus product embodied in commodities and removed one danger of economic crisis.
This led to one of the most important inventions of the capitalist system, the social welfare state and the creation of consumer capitalism in the advanced capitalist world. Giving workers in the advanced capitalist world a piece of the pie ensured continued growth and profitability in the system.
However, that came at a price as these benefits were never extended to workers and peasants in the capitalist periphery whose conditions of life and grotesque exploitation were deliberately maintained and cultivated through both direct and indirect intervention by the governments of the advanced capitalist world and MNCs.
2) Wages, Profits and Exploitation
Contrary to what many think, there is a base floor to wages. That base is biological subsistence: that wage has to allow for the physical subsistence and reproduction of the working class. If income falls below biological subsistence, the working class cannot and will not be able to reproduce the next generation (which endangers both simple and expanded reproduction of the system irrespective of current levels of unemployment of labour).
However, that is not the wage that people actually receive in most countries. That level depends on upon several things. In the longer term, there are historically and socially recognised determined levels of wages to ensure the purchase of goods and services that people in a society are seen to be entitled as members of a society. This will influence both changes in guaranteed wages over time and differences between countries. This is what is called social subsistence and it what truly forms the floor in most capitalist countries. Finally, over and above the social subsistence level, there are what is called the surplus portion of wages and whether or not these exist and their extent depends on power relations between capitalists and workers, the level of unemployment (which conditions power relations) and government interference. Most wages in the advanced capitalist world are contracted and cannot be lowered easily (thank the unions), this is not the case in the capitalist periphery. In the periphery, insufficient demand for goods produced there and sold in the advanced capitalist world often result in wage decreases for workers as opposed to the price decreases that result in the advanced capitalist world (see the Prebisch-Singer Thesis, http://en.wikipedia.org/....
The social subsistence level of wages changed in the US (and in the rest of the advanced capitalist world) due to long term linkages of wages with productivity and a new social subsistence level came into existence. Moreover, guaranteed levels of income were provided for the poor due to the creation of the social welfare state. That shifted the amount of the product needed to cover simple reproduction. This was not a one-off change; this occurred over several decades and effectively created a new social subsistence level.
What happens to the level of surplus when the social notion of subsistence alters? To keep profits high, this requires the production of increasing amounts of surplus product; that means that the size of the pie needs to increase (and here is one impetus for continual growth).
Essentially, given the floor established by subsistence, the struggle between capitalists and workers is concentrated on the distribution of the surplus product. In the context of the capitalist system:
1) Physical/biological subsistence is the ultimate barrier to the fall of wages;
2) In most capitalist societies, minimum wages are social subsistence (while it is formally the cost of reproduction of the labour force, we can link it to the cost of living in each country);
3) Maximum wages would be the total product minus the remuneration to the owners of capital for use of their money capital as investment or payment for use of their fixed capital in production.
In the context of exploitation in a capitalist system, the more of the surplus product obtained by workers, the less the level of exploitation; the more going to profits as opposed to wages, the higher the level of exploitation. Neither higher levels of social subsistence wages nor higher levels of surplus wages eliminate exploitation; they mitigate exploitation but do not eliminate it.
Moreover, there is something else that seems to be at work in the context of attempts to undermine the minimum wage in advanced capitalist countries that is an attempt to undermine social subsistence that has been established over time. This is what the attacks on the social welfare state and wage stagnation are trying to achieve. Persistent and permanent unemployment further weakens the bargaining power of workers trying to maintain the social level of subsistence and the rights and protections that workers have fought for so hard and so long.
How does this play out in the context of the system as a whole? As wage costs rise, use more capital; when that does not work, look for cheaper sources of labour (and make certain those cheaper sources of labour stay that way). Given the power of unions and the threat of socialism in advanced capitalist countries which forced capitalists to part with a portion of the surplus product (that is what it means when workers get part of the increase in productivity, or that wages are pegged to productivity), capitalists and MNCs looked for more fertile fields to increase the surplus product. Decreasing costs of production ensures that greater and greater amounts of surplus could be produced which could then be realised through sale in the advanced capitalist world.
Ownership and control over the production of raw materials and intermediate goods directly in colonies (under colonialism) and neo-colonialism enabled cheapening of final goods production in advanced capitalist countries (see Lenin’s discussion of Imperialism and relative surplus value production). Add to this the deliberate prevention of the creation of labour law and working condition protections; the suppression of trade unions enabled the ability to pay low wages (and maintain poverty). Low wages and high levels of unemployment and the fact that only part of the economy in peripheral economies (see combined and uneven development) was capitalist enabled high levels of exploitation. Domestic and foreign government repression ensured this situation was maintained. In countries like these, the whole of the surplus product produced (given sale in the advanced capitalist world) can be seized by capitalists in MNCs. The fight by MNCs over pennies per day in Haiti is about how much surplus can be seized to be made into profits through sale.
How can this system be changed? The basis of continual growth and exploitation arises from within the needs of the capitalist system for profits. Elimination of the system which relies on the exploitation of so many to line the pockets of so few has become a relevant discussion. The time in which the system was a progressive force is long over; it has become a parasite which is threatening the survival of the whole. The system has created vast pockets of extreme poverty, massive differentials in wealth and income and represents a threat to the entire planet simply so that the few that are beneficiaries can survive and prosper. The whole of the world’s population and resources has been put at the command and control of a small group of people; it is way past time that the majority are given control.
References:
Marx, Karl Capital Volumes I (for labour theory of value and exploitation) and 2 (for schemes of reproduction)
Sraffa, Piero (1960) Production of Commodities by Means of Commodities (ch 1 for simple reproduction, ch 2 for production with a surplus)