Rising mass incomes as a condition of capitalist growth. Preserving capitalism through the empowerment of labor in the past and the present

Abstract

Capitalism is market-regulated production for profit. Net profit depends on net investment spending. Net investment spending ultimately requires rising mass incomes. Both the transition to capitalism and its continued existence require social embeddedness and labor having negotiating power. Such a configuration is not an inevitable nor automatic result of history. Rather, this configuration is regularly threatened, because capitalists are not interested in preserving labor’s strength. Labor supports said configuration indirectly by the wage struggle. Where negotiating power of labor does not exist, market relations do not lead to capitalism but instead to the shedding of labor, to marginality, and to relations of rent appropriation. Today’s marginality-ridden economies of the Global South have become competitive in lines of production which are important for the leading industrial countries; however, they are competitive not on the basis of low real wages but on the basis of enhanced opportunities for currency devaluation. The tendency of wage restraint, in both the Global South and West, increases the danger of global underconsumption. There are considerable residual difficulties in bringing labor with different historical and cultural backgrounds in the West and in the South together in order to strengthen labor against international big business

Keywords:

• Transition to capitalism
• rent versus profit
• globalization
• equality and development
• empowerment of labor as a condition for capitalism

Notes

1 We have relatively reliable macroeconomic data for some of the leading industrialized countries, notably USA and Germany (Helmstädter 1969, 48, 91; Kendrick 1961, 166).

2 The Marxist-Leninist argument about the priority of the growth of investment goods production, the so-called Department I (Allen 1998, 30; Van Ark 1995, 89), was a practical application of the Lenin’s assumption of capitalism creating its own market (Lenin [1899] 1972, 42). It ended in very high capital-output-ratios which blocked the shift from (so-called) extensive to intensive growth and led to the crisis of real socialism (Elsenhans 2000). The Communist regimes tried to overcome the blockage of increases in capital productivity by massively importing foreign technology on the basis of increasing indebtedness and the oil wealth OPEC had created also for the Soviet Union through higher oil prices- a not very socialist association. Some economists in the former GDR were quite aware of the necessity of limiting the expansion of Department I, but could publish only once (Bartl and Luck 1961, 1500; Reichenberg 1967, 1786; Barthel and Karbstein 1967, 209). The different reforms within the centrally planned Eastern Block economies did not openly address the problem of the overexpansion of Department I. Planners continued solving any problem of increase of productivity by employing more financial resources on investment. The managerial class of the societies which called themselves really existing socialism freed itself not only from competition but also from prudent use of scarce resources thus engaging in exploitation, not so much by an extravagant lifestyle, but simply by inefficiency (Elsenhans [1981] 1996, 152, fn. 89).

3 I do not agree with the criticism that middle income jobs are lost because of globalization (recently Levin-Waldman 2018, 134). This does not exclude that newly industrializing countries have achieved comparative advantage in skill intensive products and are no more specialized in low skilled products which are primarily non-tradable services. Neglecting this shift in the patterns of specialization which has nothing to do with average labor cost in the advanced industrial countries, I observe that in case of high levels of employment, incomes of labor converge because of scarcity of all labor, also in favor of cheap labor. In periods of mild unemployment, skilled labor, but not normally unskilled labor, may still be scarce, whereas with continuing depression on the labor markets also skilled labor loses its scarcity and tries to survive by taking the jobs unskilled workers previously held at low wages.

4 Contrary to Levin-Waldman (2018) government payments are reflected in the prices of export goods as are wage increases.

5 I have described profit as a special type of surplus which supports decentralisation of a ruling class. The other category of surplus then is appropriated by political means and centralised political structures, the state. I call this type of surplus rent. It is connected to political organisation of the ruling class without a centre which can be held responsible by those which are exploited.

6 As measured without taking into account the higher quality of products, which are environmentally less dangerous than the products they replace.

7 Wage policies may encourage working-class organisations to ask for higher wage incomes. Often, however, they address overheating as shown by Weintraub (1972, 118). If savings exceed saving liquidations for the acquisition of consumer durables and private business indebtedness, future needs are addressed without an agent responsible for the supply of the goods the savers expect to acquire in case of future crisis. Stagflation is the result (Elsenhans 1999, 128 f.). The sphere of such future needs which are not expressed by actual purchasing acts on the market should therefore be kept out of market regulation and dealt with political social mechanisms. The proper functioning of especially mature capitalism requires more politico-economic intervention than mere income policies (already Hansen 1939, 10).

8 Where no other measures work, an artificial industry may be created in the South, for example the collection of stones redeemed for monetary value thrown in remote areas from helicopters, a concept referred to as helicopter money. An appropriate price is defined by a Western aid agency, at which the daily collection of an able-bodied worker corresponds to the subsistence needs of a nuclear family and the cost of bringing the stones to an exchange station. All marginal people, but only the marginal ones, would go to these areas and collect the stones, sell them on decentralized markets to lorry drivers. Lorry drivers are not able to cheat the workers on their produce. Without their incomes the collectors cannot survive, whereas under competition enough lorry drivers are interested in getting the money at the competitive rates offered on the market. The local market for food and simple products of the informal sector expands. Farmers who are able to produce a surplus make efforts to increase production. They will look for investment goods, which increase production, and not investment goods which reduce the labor required for production until alternative possibilities of employment are there. Aid agencies can be used to become suppliers of such appropriate technology (Elsenhans 1991, 281–283). Such a strategy would work within the framework of a single country, as it would not increase the cost of its labor (low direct influence on the exchange rate), but it would increase the job multiplier effects of export-oriented manufacturing. This type of reform could create a demonstration effect, as Western Social Democratic welfare states once did for the Soviet Bloc.

9 In the block in power, the forces close to the Catholic Church and to some protestant churches (Methodists) were the first to criticize the poverty of the great mass of the population in the 19th century.

10 Jayaprakash Narayan, lok nayak (people’s hero), 1902–1979, Indian nationalist leader with strong socialist leanings.

11 The Crown fought strongly against an enfranchisement of labor and the Levellers in the English Civil War 1642–1651 (Wasson 1991; Zahedieh 2010).

Additional information

Notes on contributors

Hartmut Elsenhans

Hartmut Elsenhans is at Global and European Studies Institute, Leipzig University, Leipzig, Germany.