By Alejandro Nadal, Professor at the Centre for Economic Studies of El Colegio de Mexico. Cross posted from Triple Crisis
There is (almost) no quarrel about the fact that inequality has increased during the past three or four decades. One of the consequences of this is the growth of unsustainable indebtedness of households in order to maintain aggregate demand, a problem intimately related to the global financial crisis and the so-called Great Recession. James Galbraith’s book Inequality and Instability highlights this aspect of the crisis and the process of inequality.
So it is critically important to understand the causes of this rising inequality. One of the most popular lines of analysis finds in technical change the source of growing inequality. This explanation says that skill-biased technological change has replaced workers at the lower levels of pay with machinery. This has the double effect of reducing the value of their contribution to production and of increasing the reward for highly skilled workers that have the capacity to repair and manipulate more sophisticated machinery. Thus technological change is seen as the force behind changes in wage structure and therefore inequality during the last three decades.
This line of analysis fits well with conservative ideology: because technical change is largely unpredictable, the phenomenon of rising inequality would appear to be an accident or an act of nature, not the consequence of perverse policies. This is an explanation that is more, let’s say, politically neutral, in contrast with such things as de-unionization. This account of inequality is found in many studies, including Acemoglu and Steelman and Weinberg. A study by the OECD also concludes that rapid technological progress brought higher rewards for higher skilled than for lower skilled workers. According to this study technological change affected the way earnings from work were distributed. And although the study found that globalisation went hand in hand with the adoption of the new technologies that penalized low skilled workers, the main conclusion was that neither trade integration nor financial openness had a significant impact on wage inequality.
There are many problems with all of these studies (for the OECD study Rosnick and Baker provide a serious critical review). But perhaps the most important shortcoming is that by concentrating on technology, they fail to carry out a detailed analysis of the impact of macroeconomic policies on income distribution. Monetary, credit and fiscal policies have a critical role to play in income distribution. During the past three decades, macroeconomic policies have been dominated by the overarching objective of price stability. This has often been translated into a restrictive posture in monetary and credit policies, as well as regressive stance in fiscal policy. Even more directly affecting wages are incomes’ policies that are implemented through various channels in both developed and developing countries. And yet, the OECD study does not devote any space to a meaningful discussion of macroeconomic policy priorities and the instruments to implement them. This is not surprising: for the OECD (or for that matter the IMF or the World Bank), the neoliberal policy package should never be up for evaluation even if we are discussing issues that pertain to macroeconomic policy. Of course, this leaves outside of the analytical picture things like unemployment, a critical parameter for the study of inequality.
So if the followers of the technological explanation of inequality fail to examine macroeconomic policy, how do they fare when studying the process of technical change? The more extreme version of this technological explanation of inequality is found the studies of authors like Acemoglu who concludes that we are facing a process of “directed technological change”. According to his research technical change will always be directed towards more profitable areas. Two factors determine the profitability of new technologies: when relative prices change the relative profitability of different types of technologies also changes. Technologies used predominantly in the production of goods that are now more expensive will be demanded more, and the invention and improvement of these technologies will become more profitable. This is a remake of the neoclassical story according to which trends in the capital-labor ratio depend on the relative rates of growth of factor supplies and factor demands.
This type of analysis exhibits several critical weaknesses. It lacks an adequate empirical base in terms of specific case studies for particular innovations. It also fails to carry out an analysis of specific branches of manufacturing with an industrial organization perspective that takes into account intra industry channels of competition, as well as the role of finance. In the end, as the study The Rate and Direction of Inventive Activity Revisited shows, we are still far away from a robust theory of technical change. This is why studies like Brian Arthur’s analyses where lock-in processes and increasing returns to adoption lead to path dependency, showing that technological trajectories are truly unpredictable.
But if technology is behind the inequality story, it is perhaps towards Marx’s analysis that we should turn for some light. Capitalism has an inherent tendency towards productivity augmenting technical change, whether this affects skilled or unskilled workers. As Moseley pointed out, it is the ‘hunger for surplus value’ that drives technical innovation in a capitalist economy. And that is something that not only drives inequality, but also has profound macroeconomic consequences that are highly relevant for the study of inequality trends.
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too true….BUT what is really needed for mass perception is a direct following of the $$$$…Libertarians spout ideological disconnected-never extant any time-any place, anti-government dogma…
and are totally reticent in terms of following $$$$-claiming payola-lack of transparency, oversight, accountability, are merely “symptomatic” of government corruption…(ever smaller govt.-Libertarian ideology)..
the important TRUTH involves where the $$$$ has gone (easily discernible), and where it IS going…(and what for-QE3)..
In the end, transition involves IMF-World Bank “bailout”, aimed at “Privatization” of all government auspices, BUT with taxpayer $ubsidized PROFIT…which is reason Libertarians spout only ideology, rather than following $$$$ to historically corrupt ends…generated not by government, but by profiteers…
classical U.S. repubLIEcon economics inches closer and closer to blatant corporate fascism=oligarchy…(we’re THEEERRRREEEE)….
..neglected to mention-reason ex-middle-class goes “along”, is, they are intrinsically invested, in what is now an ex-status-quo false “stability”…basially pleading for their lives back…as Gore Vidal noted before finding his way “out”,
it’s NOT coming back…
Interesting. I would add that the ‘technology’ argument does not explain to me why workers income as a % of GDP has declined over the last several decades (from memory). It seems reasonable to expect that the higher paid ‘tech’ workers would have dragged the average up in the aggregate (whereas the lower skilled workers would have done the opposite). My understanding is that the productivity gains have not gone to those who work.
I tend to buy Hudson’s argument re financialisation which would need to be included in any understanding of inequality.
Si
Simon=answer to your question-due to “financialization” of U.S. economics=circa 2001, “financial sector generated around 15% of U.S. economy..by 2007, nearly 40%…
as you note, Michael Hudson, WK Black, show appropriate “paper debt” connections…
The BEA’s “Myths and Misperceptions About The U.S. Economy: What Are The Facts?” has a chart for “What is Workers’ Share of National Income?” which shows a fairly stable rate for 1959 through 2011. That surprised me, but I suppose its the distribution of income that has changed most. The average income of the top 1% has soared while overall wages have been relatively flat, so all the productivity gains are going to the top of the food chain.
Ritholtz link to the BEA report:
http://www.ritholtz.com/blog/2013/04/bea-myths-misperceptions/
Workers’ income as a share of income is declining:
http://monthlyreview.org/2013/03/01/class-war-and-labors-declining-share
Re financialization, it could be argued that it is, in part, a reaction to growing equality. Folks at the top have more money than they can invest, so an increasingly larger share of their capital is diverted into speculation. And when speculation, during bubbles or economic downturns, becomes more profitable than production, all the more is financialization going to expand.
I cannot offer a link to an important research paper on the subject, but I believe Labor Power is inversely proportional to Capital Power. The oft stated position that increasing GDP, or productivity “raises all boats” is propaganda. Here is my synopsis of the past 30 years. As union power declined, wages shrank as profits grew. As work once done in union shops here in the USA was shifted to non-union, slave labor in Asia and the global south, wages shrank as profits grew. As the consumer’s purchasing power shifted from wages to credit, wages shrank as profits grew. In short, the crash of 2008 was in fact the culmination, the final victory of capital over labor and its aftermath provides we proles with the first full view of our masters and their intents. I need no ivory tower to see the gun pointed at my head.
“My understanding is that the productivity gains have not gone to those who work.”
I agree. Surplus value can derive just as easily from the application of cheap labor in China as it can from the application of technology. Workers tend to lose either way. Especially when resources for technology get directed toward developing ways to replace those workers (as opposed to, say, developing new sustainable energy resources). Therefore, blaming inequality on technology is a false argument. The reality is that labor simply isn’t valued, and laborers are not allowed to share in productivity gains.
This is why Marx balked at Russia going communist, as his concept was that communism would come gradually as a nation industrialized to the point that most of its population could be supported by a small workforce. Russia at that point was barely beginning to industrialize, and would not really catch up until WW2 forced it to outproduce Germany.
There’s also a political dynamic – wealth buys the power to concentrate more wealth, to buy more power, to…etc.
Steve Keen’s done some interesting work on Marx’s version of surplus value. He’s come to the conclusion it has some serious flaws (doctrinnaire Marxists look away):
http://www.debtdeflation.com/blogs/wp-content/uploads/papers/Jhet_use.PDF
I suspect financialisaton and neo-colonial ‘off shoring’ have more to do with this process than the composition of capital goods.
Honestly, if someone isnt willing to look at criticism of his/her views, then why does that person bother to have an opinion at all?
Im a Marxist, not sure if im a doctrinaire one or not, im probably not honestly, but either way im more than happy to read this. I havnt done it at the time of this post however.
Besides, Steve Keen is awesome and deserves to be listened to.
Maybe the neoclassical priesthood shouldn’t read Steve Keen too.
Marxist micro has always been shaky.
But Marx’ macrohistory is not derived from Marx’ microeconomics. Instead, Marx did things the other way around. He made a study of materialist macrohistory, and to this main work, he later tried to retrofit a microeconomic theory in order to provide the historical with a more comprehensive explantion and justification.
Intellectually speaking, this was a titanic ambition on his part. No one should be surprised that the retrofit was unsatisfactory–instead we should be surprised that there remains so much of current interest in his microeconomics.
In any case, the inadequacies of Marx’ micro do not detract from Marx’ historical and political analysis, which predated his micro theory and were not based upon it. In other words, Marx’ analysis of historical trends, based on dynamic class struggle over the means of production, remains cogent.
The impact of mass low-skill immigration and its relationship to technological advancement is missing from this article. Here is immigration expert Barry Chiswick’s Senate testimony in 2006 on the subject.
He starts by explaining that high-skilled immigration tends to lower the salary of high-paid jobs and at the same time increasing low-skilled salaries. On the whole he states that high-skilled immigration is a net benefit to society. Then he goes on to discuss low-skilled immigrants:
Technical advancement is typically a good thing for society since the process tends to replace many low-skilled jobs by fewer high-skilled jobs. But the society has to manage this process by among other things pushing more citizens into the high-skilled category through education, etc. More high-skilled workers means more taxes paid, less use of public assistance and better services for the ever dwidling low-skill population. Technological advance becomes a virtuous circle.
But if the number of low-skilled workers is artificially inflated by actually importing them from abroad then there are two impacts. One is that the virtuous circle of technological advancement stops as an ever increasing supply of cheap labor mean there is no reason to turn to technology. Compare Chinese to European concrete construction methods for example. Even worse, if with a rising low-skilled population technical advance does take place in some fields anyway then a vicious circle is created where fewer low-skilled jobs combined with more low-skilled supply means more and more native citizens are pushed down to the low-skill category in a race to the bottom. In this case both natives and immigrants overload the public assistance programs and public education declines and inequality rages. Sound familiar?
So sure monetary policy may have some roll to play but continuing to pump the country full of low-skill immigrants is only adding fuel to the inequality fire.
http://www.aila.org/content/default.aspx?bc=1019%7C6712%7C12178%7C21554%7C19197%7C19200
Thank you for your excellent comment.
Massive immigration of low skilled workers probably played a large role in the economic disruption in Spain. They were brought to Spain to bring down wages of low skilled workers filling positions in the booming construction business.
Latin American immigrants seem to be leaving now, as those countries continue to grow quite robustly, whereas Africans tend to stay and earn an income by selling cheap chinese goods in the streets.
In Spain low skilled jobs in the construction business also attracted native high school students who abandoned school to earn the wages at the same time that the immigrants were coming. Those poorly educated native youth now compose the ranks of the 57% of young unemployed people. You read it right, 57% people under 29 years old unemployed.
What a multilayer clusterf*ck! And the people re-elected the self-righteous morons that thought all that was happening was a great idea.
This African sure isn’t selling cheap Chinese goods on the streets.
I’m happy for you, African, I have no problem mingling with all kinds of people (except some I rather not mention but it doesn’t have to do with skin color), even those selling goods in the streets, in my view they are the best practitioners of anarcho-capitalism.
While I don’t find anything in your comment to disagree with, I nevertheless think it is parochial, incomplete, and misses the bigger picture.
There are now something like 12 million people living in the United States that were born in Mexico. It is a fact that these people did not immigrate to the US voluntarily, but were driven there because their livlihoods were destroyed in Mexico by neoliberalism, a pernicious doctrine imposed upon Mexico by the United States, with the cooperation of a traitor class of Mexican elites. (Of course Mexican elites, if they want to remain elites, either do the bidding of the United States, or they are eliminated either by murder or voter fraud, all of which is of course sponsored by the United States.)
It was Luis Echeverria Alvarez (1970-1976) who first set Mexico on the neoliberal pathway. As Carlos Fuentes notes, he attacked the entrepreneurial class “with gleeful Third World enthusiasm while making its memebers richer than ever.” But it was Lopez Portillo (1976-1982) who blew the first big debt bubble, the realization of which is always the holy grail, the alpha and the omega, of neoliberalism. Portillo “promised Mexico unbounded wealth based on oil exports and brought inflation, debt, despair, and disillusionment,” Fuentes explains. “Riding the crest of the oil boom, Mexico contracted gigantic debts that it could not pay when the oil glut, followed by a plunge in prices, left the country without liquidity. In 1982, Mexico went broke. The miracle had become a nightmare.”
Neoliberalism in Mexico was boosted greatly by NAFTA. The effect upon the Mexican campesinos was devastating, as they could not compete with cheap, US government-subsidized corn being imported from the United States. If they did not enter the protection of Mexico’s narcotics cartels and shift to the growing of more profitable marijuana, they were driven and dispossed of their land. This was the fate of millions of Mexico’s campesinos. Many of these migrated to Mexico’s large cities, where they live in massive slums in abject poverty, being fodder for the slave-wage maquiladora industry (another product of NAFTA). Others made their way to the United States.
The bottom line? The purchasing power of the minimum wage in Mexico is now one fourth what it was in 1982. The purchasing power of the average union worker is one half. The number of Mexican living in Mexico in extreme poverty, despite 12 million Mexicans having fled to the United States, has balooned from 5 million in 1982 to 22 million in 2011.
Good point, not to mention the thousands that have fled US backed death squads and ‘drug war’ terror programs in Latin America. Most migrants are following their plundered wealth northwards, escaping structural adjustment and ecological devestation, along with other consequences of the Washington consensus.
Oh, the wicked webs we weave. Here’s an interesting factoid from the comments section of another of today’s posts about the owners of the fertilizer plant that blew up in West, Texas:
I certainly agree with your big picture sketches but I just want to make sure you are not implying that the poor in America have no right to object to their hitherto compulsory role of playing Jesus to the Neoliberal rich.
To me it is clear that native low-skill workers in America are in no way obliged to bear the cross of Neoliberal sins.
Well I suppose there are proximate causes and there are ultimate causes. I am asking of American workers that they not get fixated on proximate causes, but instead make themselves aware of the ultimate cause which is causing their distress.
One of the proximate causes of US worker distress is the presense of 12 million Mexican immigrants in the United States who will work cheap.
The ultimate cause of US worker distress, however, and the cause of these 12 million workers being in the United States to begin with, is a pernicious doctrine, imposed upon the world by the United States government, called neoliberalism.
Let’s place the blame where it ultimately belongs. Blame should not be laid at the feet of innocent third-world workers, who themselves are also victims, but at the feet of US policy makers who have imposed upon the world this pernicious and failed doctrine called neoliberalism.
@ Working Class Nero and re the Arizonan lettuce grower not investing in new technology.
So true. In his book ‘The British Industrial Revolution in Global Perspective’ Robert Allen examines why the industrial revolution occurred in Britain and not somewhere else or at some other time. He concludes that good institutions, specifically the Rule of Law (the most commonly cited reason), was important as was the ready availability of coal and a background of using it because, particularly in the London area, affordable wood supplies could not keep up. But he also finds that a major factor was that labour in south east Britain was EXPENSIVE due to widespread prosperity, more expensive than any other region in the world except the nearby continent which didn’t have Britain’s coal. This meant that even the horribly inefficient and coal-hungry early engines were more economical than armies of labourers. So mine owners invested in them. Pretty soon of course technical improvements by James Watt and many others meant that steam engines became much more efficient. If I remember correctly the amount of coal needed to generate one horsepower fell from 40 Kg to 2 Kg with just a few years. This naturally made steam power cheaper than labour in most circumstances, even far from mines where coal was expensive.
All of which is the exact opposite of the neoliberal prescription for prosperity.
The author is assuming that the neoliberals are operating in good faith. They aren’t. As Reinhold Niebuhr explains in Moral Man and Immoral Society:
“Wherever men hold unequal power in society, they will strive to maintain it. They will use whatever means are most convenient to that end and will seek to justify them by the most plausible arguments they are able to devise.”
This is just as relevant today as it was when Niebuhr wrote it back in the early 1930s. Human nature has not changed since then. The political economist David Hume thought that the same motives always produce the same actions. The same events always follow from the same causes. After everything we’ve witness so far, can anybody say he was wrong?
Yes! Inequality is the goal; it’s not an unintended consequence, any more than terrorism is an unintended consequence of the global war of terror. Disaster capitalists want inequality first and foremost, as they do war, to concentrate absolute power. The Shock Doctrine is proceeding apace.
“It is not enough to succeed. Others must fail.” – Gore Vidal
Never attribute to incompetence, ignorance, or cowardice what is better explained by greed and malice. Think Obama, the crony capitalist’s manservant.
Looking at the big picture, at the ultimate causes, inequality has been rising in the last few decades because western capitalism is now a system that is not checked by competition. Western capitalism need not sugar coat the pill anymore. No competition, no improvement.
In the USA for example, the best years of solid middle class growth, finantial regulation, wage improvement, GDP growth, etc, coincided with the ascent of post WWII Soviet Russia, up to the Sputnik and later. There was real fear back then, that western capitalism was inferior.
But after the collapse of the URSS, capitalist captains and masters, your leaders and bosses, relaxed. The commies are done, let’s tweak the system to our advantage, let’s bust unions and let’s spread the idea that using the State to mobilise more wealth to the already rich, i.e. neoliberalism, is goof for all. What can they do? There is no alternative.
The problem I find with this argument is that the timing doesn’t match.
Neoliberalism was first rolled out by the military dictatoriships in Latin America in the mid 1970s. By 1982, Latin America had already experienced its first full-blown crisis of neoliberalism. According to Kevin Phillips in Bad Money, this was the first time that the Fed and U.S. Treasury moved heaven and earth to bail out U.S. banks for their imprudent and derelict lending behavior. The common people of Brazil, Argentina and Mexico paid the price, and the decades-long process of pauperization of Latin America’s unwashed began.
It was Jimmy Carter who began rolling out neoliberalism in the United States with the appointment of Zbigniew Brzezinski in 1977 as his National Security Adviser and Paul Volker to the Fed in August of 1979. But these were baby steps. Ronald Reagan was the first full-fleged American neoliberal guru, and every president since him has been progressively more neoliberal.
The Soviet Union did not disintegrate until after Reagan left office, so U.S. neoliberalism was already well advanced before the Soviet Union imploded.
Not already well advanced, just starting. The collapse of the USSR was the catalizer for neoliberalism taking hold in the developed world, because this budding utopia, neoliberalism, found itself suddenly without serious competition in the political-economic paradigm landscape.
This explains too the intellectual decadence of social democrats in Europe, which hurriedly had to become bourgeois-friendly, not having a working left paradigm to average to.
As for Latin America, neoliberalism started there, b4 the collapse of the USSR, because those where the testing grounds of the new ideology. I guess you, gringo from Mexico, have heard about the Chicago boys …
ruben said:
That would be true if one doesn’t consider the United States and the UK to be part of the “developed world.” This graph, for instance, shows the balooning of private debt in Spain, Ireland and Portugal not occurring until 1995 or later:
However, the story for the US and the UK is quite different. The change of inflection in the private debt to GDP curve occurred much sooner. It looks like the ascent of US debt to vertiginous heights began in 1984, and in the UK no later than 1987, as this graph shows:
The identity relation you make between private debt and neoliberalism is a bit terse.
You might be right but it may also be that there is a lag between the solidification of neoliberalism and the formation of private debt, so the timing would still be right for my theory.
from Mexico:
The timing matches if you think the Soviet Union was already teetering on the brink of collapse before Reagan entered office. If Nixon hadn’t put his stamp of approval on agricultural exports to the Soviet Union during his presidency the United States probably would’ve won the Cold War back then. By starving a few million Soviet citizens at the relatively low cost of angering the farm lobby.
There are two post-WWI theories which have emerged to explain world events in the post-WWI era. One is the orthodox theory, and you and ruben seem to hew to this theory.
The orthodox theory is a dualistic theory that splits the world into two realms, those who advocate what Thorstein Veblen called “absentee ownership” and those who are the enemies of absentee ownership. According to the orthodox theory, there is only one enemy to absentee ownership: Bolshevism and the Soviet Union.
Here’s how Veblem explained it:
However, a heterodox theory has also emerged to explain post-WWI events. Just like the orthodox theory, it is a dualistic theory that splits the world into two realms, those who advocate absentee ownership and those who are the enemies of absentee ownership. But in the heterodox theory the enemies of absentee ownership are many and varied. Likewise, there are many reasons that nations or peoples can be opposed to absentee ownership other than an ideological commitment to Bolshevism.
The heterodox theory is described in great detail in a film by the Canadian filmmaker Scott Noble, The Power Principle, beginning here:
The stark difference between the orthodox theory and the heterodox theory becomes evident within just a few minutes upon watching the film beginning at this starting point. In a separate interview, however, Noble summarizes in short order the heterodox theory with two bullet points as follows:
Geopolitical competition most certainly affected the class struggle within the Western developed countries. Such geopolitical competition was not restricted to the Cold War, although the duration of that conflict allowed the internal ramifications to develop more fully.
The ruling classes’ in the Western countries had to balance their demands for the workers’ support and discipline in the geopolitical struggle with promises to the workers of a better life. Without the workers’ support, the Western ruling classes might not have been successful in their geopolitical ambitions.
For example, consider the Beveridge Commission in 1942 in Britain, and the rush to a welfare state which came at the war’s end–developments which had their counterparts in other Western countries.
Geopolitical ambitions and fears encouraged Western capitalists to make compromises with their working classes. Those compromises were crystallized in the post-WWII welfare states. In exchange, Western working classes for the most part cooperated with their rulers’ programme towards both Second and Third Worlds.
Once their geopolitical aims were fulfilled, Western capitalists no longer needed to keep their workers happy. Western capitalists no longer fear the consequences of a disaffected Western working class, since they now have ready access to the labour and natural resources of the entire world.
This access has gotten so easy that at this point one of the major Western central banks can, simply by say-so, generate at will an almost unlimited purchasing power of real labour and resources from anywhere on the planet.
What we see right now is a geopolitically victorious Western ruling class, running rampant.
The low-skills/skills-mismatch meme is also a vital part of the conspiracy to destroy our Public Education system and turn it’s purpose from the common good to private profit.
The 1% are busy destroying our education system for profit and at the same time blaming the great recession on the American peoples lack of skills.
Their solution is to privatize schools, which means stealing the public school’s budget, real, tax-payer’s money, and replace it with vouchers that may as well be useless in that most recipients won’t be able to afford the difference between the voucher’s face value and the actual tuition cost.
All this chicanery will leave the poor, most of us by now, going to what’s left of our public schools, impoverished training camps for Wal-Mart.
Surplus Value is a euphemism for money available for the taking, with the aid of captured government and media.
I think the education sector whether nonprofit or for profit is culpable as well. They certainly stand to gain from the idea of technology driving inequality. I don’t happen to think education is the answer to inequality. I actually think it serves as a distraction– distracting from all the structual/political reasons that has contributed to the rise in inequality.
1st – there is no shortage of skilled labor – none.
2nd – Displacement of workers because of technology is not driving unemployment – not at all. Just look at all the 14 cent per hour workers that died in Bangladesh — don’t tell me that American Companies are using tech to increase productivity. Productivity increases in this country are not being shared with the workers.
3rd – Speculation in property IE: driving the costs of living and doing business in this country have increased due to bubbling IE: asset bubbling – ie: finacialization. These speculations in the costs of doing business and living have made us non-competitive on the global market. Surely a garment worker in Bangladesh has the same potential intellect and capacity as that of any USA counterpart. Further, the USA tax system, where unearned income is given favor over earned income is unjust. It is Unearned – afterall.
The government could have used its equity ownership and control of the banks to provide credit and credit card services as the “public option.” Credit is a form of infrastructure, and such public investment is what enabled the United States to undersell foreign economies in the 19th and 20th centuries despite its high wage levels and social spending programs.
In spite of the ingenious methods devised by statesmen and financiers to get more revenue from large fortunes, and regardless of whether the maximum sur tax remains at 25% or is raised or lowered, it is still true that it would be better to stop the speculative incomes at the source, rather than attempt to recover them after they have passed into the hands of profiteers.
If a man earns his income by producing wealth nothing should be done to hamper him. For has he not given employment to labor, and has he not produced goods for our consumption? To cripple or burden such a man means that he is necessarily forced to employ fewer men, and to make less goods, which tends to decrease wages, unemployment, and increased cost of living.
If, however, a man’s income is not made in producing wealth and employing labor, but is due to speculation, the case is altogether different. The speculator as a speculator, whether his holdings be mineral lands, forests, power sites, agricultural lands, or city lots, employs no labor and produces no wealth. He adds nothing to the riches of the country, but merely takes toll from those who do employ labor and produce wealth.
If part of the speculator’s income – no matter how large a part – be taken in taxation, it will not decrease employment or lessen the production of wealth. Whereas, if the producer’s income be taxed it will tend to limit employment and stop the production of wealth.
Our lawmakers will do well, therefore, to pay less attention to the rate on incomes, and more to the source from whence they are drawn.
Written around 1925
Laborers knowing that science and invention have increased enormously the power of labor, cannot understand why they do not receive more of the increased product, and accuse capital of withholding it. The employer, finding it increasingly difficult to make both ends meet, accuses labor of shirking. Thus suspicion is aroused, distrust follows, and soon both are angry and struggling for mastery.
It is not the man who gives employment to labor that does harm. The mischief comes from the man who does not give employment. Every factory, every store, every building, every bit of wealth in any shape requires labor in its creation. The more wealth created the more labor employed, the higher wages and lower prices.
But while some men employ labor and produce wealth, others speculate in lands and resources required for production, and without employing labor or producing wealth they secure a large part of the wealth others produce. What they get without producing, labor and capital produce without getting. That is why labor and capital quarrel. But the quarrel should not be between labor and capital, but between the non-producing speculator on the one hand and labor and capital on the other.
Co-operation between employer and employee will lead to more friendly relations and a better understanding, and will hasten the day when they will see that their interests are mutual. As long as they stand apart and permit the non-producing, non-employing exploiter to make each think the other is his enemy, the speculator will prey upon both.
Co-operating friends, when they fully realize the source of their troubles will find at hand a simple and effective cure: The removal of taxes from industry, and the taxing of privilege and monopoly. Remove the heavy burdens of government from those who employ labor and produce wealth, and lay them upon those who enrich themselves without employing labor or producing wealth.
I worked in a Government agency twenty years ago. We predicted then that globalisation would increase income inequality within the countries affected. The expected response was that Governments would redress the balance by pursuing greater income redistribution within each country.
The first has happened. The second has not.
Theres one simple reason for your analysis being incorrect.
You assumed rationality of the elites.
The elites who rule the world are not very rational. Theyre butchering the sheep instead of sheering it, killing the goose that lays the eggs, or whatever other metaphor you would like to use.
So dont feel too bad: Rational people like (presumably) yourself usually assume other people are rational. Its a common mistake.
I can recall reading about globalization in the early 70s. Back then it was called “post-industrial society”.
The story was that as Europe completed its recovery from WW2 and third-world countries continued to develop, “routine” manufacturing would move offshore. Advanced countries would then engage in massive programs of R and D plus worker training to build “high-value” industries that required extensive infrastructure and an educated workforce.
As William C notes, the first happened and the second didn’t.
Part of the problem, the question that was begged, or something, is what do you do about the fact that R&D consumes an order of magnitude less labor than “labor” does. Even if we invested as much as we should have in R&D and everyone was given all the education they needed to have, it would only give a small fraction of the displaced-by-globalization local labor something useful to do. I saw that then, but then, as now, I don’t know what to do about it (that is, combatting the Peterson/Koch types).
“Companies are using tech to increase productivity. Productivity increases in this country are not being shared with the workers.”
“Companies are using tech to increase productivity. Productivity increases in this country are not being shared with the workers.”
“Companies are using tech to increase productivity. Productivity increases in this country are not being shared with the workers.”
That is ALL of it. Give us a shorter work-week with the same weekly pay as we have now. Take the increase in pay out of profits. Problem solved. (Disclaimer: I know the devil’s in the details. I have no clue how to effect this.)
Financial inequality holds worldwide. It’s not restricted to the US and Europe. Obviously, the economics argument raised above holds while the technical argument is ridiculously marginal.
There seem to be also a much more pronounced class system in affluent and fast developing countries. Inequality is not only financial it’s social, educational and residential. The top class enjoys unlimited access to riches and therefore attracts politicians, managers and even top scientists.
• Alejandro Nadal said:
This is very much by design. As Stephen Toulmin notes in Cosmopolis: The Hidden Agenda of Modernity:
The vast majority of economists, from the very day Adam Smith opted to lend his services to and become part of the cosmopolitical scam, are the best paid liars and bumsuckers that money can buy.
• Alejandro Nadal said:
The hired liars and bumsuckers merely doing what they’re paid to do.
• Alejandro Nadal said:
This is called lying by omission.
• Alejandro Nadal said:
This is known as TINA — There Is No Alternative.
• Alejandro Nadal said:
More lying by omission.
• Alejandro Nadal said:
The elimination of empiricism, and the concomitant triumph of rationalism and purely speculative thought, has been a metaphysical and epistemic tool of elite domination and control at least since the days of Socrates, Plato, Aristotle and Pythagoras.
I’m a scientist Mexico and tend to like technology. There is chronic bias in what we study as technology. When you look at the machine (bit of plant) there is really some kind of aura of other technology of which it is part – you will even have costed it in terms of the redundancy calculation on the workers it will replace, the training of workers who will use it. I’m sure you know this.
The workers can be cast off balance sheet to be written off on the government-social one. Its all typical economics – rendering something an externality – a remainder to be forgotten in the rest of the calculation. This is all part of the available technology. It’s rare to find studies of such workers – most I have seen are in line with Michael Moore’s stuff on his hone town of Flint – I note Michigan has lost 48% of is manufacturing in ten years.
The examination of technology in economics and accounting is dire, sloppy and non-scientific. Homo economicus is bad enough, but the myth is such that poor, starving people are expected to be thrusting, entrepreneurial, self-sufficient (where the means to grub a living have been ‘colonised’)and full of energy! This isn’t just stupid, its evil.
Most of the stuff we are allowed to study as academics is likely to have dubious relation to creating a better society. It is very hard to build when you can’t trust what has gone before. There are problems in our peer reviewed journals – http://www.theatlantic.com/magazine/print/2010/11/lies-damned-lies-and-medical-science/308269/ touches to what is now a wide body of concern even in hard science.
An obvious area in which technology could have reduced product cost and widened access is higher education. Instead one might regard what has happened as ‘Luddite’, with a corruption twist that entraps students in debt peonage in exchange for pieces of paper that accredit them to work. Classrooms and lectures were once the way, the technology available to disseminate knowledge. Now there is nothing other than profit considerations to prevent all basic material being made available free or very cheap on line, but HE costs spiral.
Habermas pointed out long ago (1970) that technology is the ideology – a good point I don’t fully agree with. If one discounts the value of human life, one can ask whether technology should replace us and why and if it should serve us. Natural disasters in the third world often kill more people after the event because there is no work, so no pay, so no food, so starvation.
No one has ever shown me how bringing in technology that cuts jobs ever leads to economic expansion and more good jobs. There never seems any acceptance that we might survive much better with fewer broken human backs. The point of contradiction I’d like to see explored is the massive pressure on costs in manufacturing and agricultural production and the lack of this in other sectors – finance is an obvious one, but the professions generally seem to have been maintaining high margins.
Years ago we thought expert systems would replace a lot of professional work, but experts have proved the most “Luddite” of all – in this case by preventing open access to their technology – the use of which I suspect is no more skilled than driving a car. My guess is we need to expose a slave mentality in economics that prevents technology benefiting us all – something maintained by a control fraud similar to the divine right of kings. I suspect we get almost everything wrong because we have an elite who do little work but control the rest of us with a work ethic programmed into us as surely as the genetic mechanism in a hive. The control mechanism is a set of variations from being left to die if you have no work and no money. Modernising third world agriculture would probably lead to that part of the population displaced from work starving. The only difference in modern economies when we modernise through technology is still a variation on this with a better safety net. I doubt most people would work if offered the same income not to. Those given the choice through lottery don’t work. We seem to be forgetting that the point should be decent distribution of income and life opportunity. We always seem incapable of organising on this basis or even talking about alternatives to shoveling surplus value down the throats of the rich and varieties of welfare schemes – all costs on business at high margins (but off balance sheet) that are in contradiction with managerial cost cutting in the business.
The libertarians (who at least are allies on the collapse of democracy) say we run scared of free markets and real capitalism and instead have crony capitalism. I think we run scared of rational planning and distribution – not least because the people who get in to control such form groups to rip us off (as in Mao, Stalin … down to creeps who nick aid and microfinance). It’s so stupid an Indian peasant farmer looking at a tractor may be looking at the means of his death, welders looking at the latest computer organised welding machine unemployment, lower wages and the loss of the big employment that made the social fabric he and his family lived in. Lower standards of living or death come as we have technical abilities to raise standards everywhere. There is no science in this “technology”.
In considering technology in organisation theory we don’t think of machines but the socio-technical (at least since the 50’s). Such consideration is nearly always managerial in bias – and these days this means money-grubbing. People have become much more throw away than old plant.
I think largely speaking the ideas presented about inequality are right. We should not be ignoring macroeconomic policies and its not just de-unionisation , and the increasing role of finance, but regulatory capture and the effects of money and lobbying on politics.
The link below argues this point.
http://www.epi.org/publication/wp295-assessing-job-polarization-explanation-wage-inequality/
Yet I finding myself strangely at odds in some ways to all the arguments about inequality causation. David Rosnick and Dean Baker are right to point out the weaknesses in choice of percentiles in the OECD paper yet attributing a large part of the blame to the growth of the financial sector does not sit quite right. Acemoglu talks about the effects of technology, but does not have an explanation for the differences in English Speaking and non english speaking countries. Steelman and Weinberg argue thats its skill-biased technical change, but that does not explain why certain professions like engineering have not really seen high rewards. Robert Gordon and Ian dew becker in an NBER working Paper point to the inbred nature of corporate boards as if they are a class all of their own, but I would take issue with their argument that prices of imports (globalisation) has had no impact and it does not explain why inequality is rising in Japan when directors share of income has remained steady there. John bound and George Johnson from the Fed suggest its women and immigrants joing the work force even if the timescales are wrong, Globalisation and the openess of the some economies, the decline of the trade union, and skill-biased technology change. Other ideas include the miss measurement of inflation with those at the top end having a better chance of wages matching real inflation.
Gut feeling tells me the hunger for surplus value is a major contributor and it is not limited to either skilled or unskilled workers as Yves suggests, I dont think the mechanisms are well understood though or how they are changing with time. During the 80’s and 90’s much of this was driven by technology with computers and robots coming to the fore replacing low skilled jobs. The focus now has shifted to Job specialization and by this I mean deliberately narrowing the parameters of a job so that the skill set required is reduced (Think Macdonalds and the person who just does the fries, or the guy who used to be classed as an accoutant but is now a credit controller).This specialization make employees easier to train and replace, makes jobs easier to turn process driven, and reduces the need for experience , a broad knowledge and so wage requirements (Nordic countries tend to go the other way). Within large firms you are seeing the establishment of four classess, the process doer, the process designer , the blue sky thinker and the directors. Classes can mean barriers and ability to extract rent.
The link below provides an explanation but I would argue it has spread from the service industry into other areas.
http://ftp.iza.org/dp4290.pdf
For the next decade the hunger for surplus will change again. The next big thing will be Knowledge Process Outsourcing as opposed to business process outsourcing which will begin to hit the next rung up the chain (the process designer and to a lesser extent the blue sky thinkers).This to my way of thinking is using technology to analyze company performance, analyse markets to suggest process changes and new market opportunities. Your new manager could be a computer anywhere in the world (tongue in cheek).
I graduated with a Masters degree in Electical Engineering in 1967. If engineers are one of the drivers of technology change and advancement then engineering salaries should have advanced accordingly. I know what my starting salary was in 1966. If I multiply it by the increase in GDP from 1966 to 2013 an engineers starting salary should now be about $210,000. Since the working population has about doubled in that timeframe then maybe it should only be about $105,000. I believe starting salaries are lower than the latter number even for doctoral graduates. So whose getting the big rewards? And who gets to see their salaries grow with GDP instead of GDP/person?
The problem is that engineers are generally too honest to understand money creation?
I once did a quick guesstimate of what top salaries “should” be, based on a profession (I chose engineering!) that wasn’t in a position to game the system. I arrived at the notion that minimum wage to roughly 20x minimum wage represented the range of salary that education, training, etc. could account for. Higher salaries/incomes than that are a result of people manipulating the rules.
I think this is way simpler than people are making out.
Those whom have the power have decided to give themselves the larger share of the bounty.
Through cleverness they’ve convinced everyone they are worth more. Although I dont think its that even, its just more apathy and the attitude of just accept and let things happen. They took more, noticed that no one cared or was bothered so they did it more, and the more they required the more they required, for their mates and their speculations.
Its why I think things are going to get worse, its the common attitude to just let things happen, if things seem to be working and things arent effecting you that much, then its fine.
But society doesnt work like that it may seem to function fine but it just guarantees a decline/a collapse in the future.
When things decline, wages will decline more, because the selfish ones will require more, and no one will stop them.
A wider lens..
Big Pharma-Med wants to medicalize the 100%, more bodies.
The prison industry wants to criminalize the 50%, more bodies.
Big Agri-Food wants to incapacitate the 50% with obesity, more bodies.
The elite want to privatize public education for at least the 50%, more hapless bodies and minds to screw over.
Law ‘n order forces want terrorism, crime and mayhem to get 50% more funding and power.
Health Insurers wanted the 100% insured, they got it. (Obama. see other post on NC today.)
Drug Barons and money launderers, who are the same class, want 100% impunity. Mission accomplished.
The Defense-Military complex wants war, to keep its funding at 100%. More bodies, blasted and tortured ones.
Banksters want to skim off the top, rip off everyone legally or commit fraud with no penalties – 100% win.
Gvmt. wants to protect and keep its own power 100% to rake in 50% or more of ‘x’ for corrupt individuals. That works.
-> Obviously used the two % of 50 and 100 in odd and shoddy ways for illustration. And while this is about the USA, world wide some others are not much different.
So what happens when such concentration of wealth and power takes place?
Some % of the cadres and workers (basically tech, security, finance management, and Gvmt. – oil, guns, dollars, which means revenues, transport, safety, profits, keeping the peasants quiet) need to be co-opted and kept on board. Say the 20%…
Then the top circle shrinks as outlay outstrips profits thus sharing, coordination, amongst the top breaks down. Only so much can be squeezed out with ‘slave’ labor or ‘bodies’ to treat, someone has to pay with productive activity and finance high jinks can’t compensate, as it is detached from any real life exchanges. The world does not stand still and workers who starve halt, regions that are devastated can’t produce anymore, etc. Once the max has been squeezed out (e.g. Iraq) bad-lands are created even if puppet Gvmts. hang on to power for slim pickings – aka Aid, support, etc.
So some brand of dystopia…or other…
credit regulation creating 100%+ consumers. Take a look at who gets rewarded to spend more than they make and why. The ‘elite’ are simply welfare queens / scapegoats that justify the behavior of all the rest of the welfare queens.
The private sector has been expunged within the empire. There is nothing to stop these idiots from destroying themselves, and they cannot change their inbred behavior in real time.
Money is simply a feedback mechanism, first ignored, and then twisting debt into an asset via bankruptcy advantage. If you owe the bank x, you are the dined. If you owe the bank xxxxxx, you are the diner. trump just plays the game the way it was designed to be played.
if you have no skill, form a gang. the US government is the mafia. technology has simply accelerated the empire process.
Wealth inequality is driven by looting, criminality, and kleptocracy. All of these discussions about technology, skills mismatches, robotics, and other “causes” of stuctural unemployment are screens to distract our attention away from the real sources of wealth inequality and more particularly those who perpetrate and benefit from it. They are the “Look over there, bright shiny objects” of class war.
What do tens of millions of Chinese peasants or Bengladeshis so desperate they will work in factories that fall in on them have to do with technology? Nothing. But they have a lot to do with kleptocracy. The technology argument is propaganda. It is meant to sound great so long as you don’t think about it too much, because if you should, it all falls apart. If technology was increasing productivity so massively, then we all could work a few weeks a year and spend the rest on vacation. But this doesn’t happen, and it doesn’t happen because productivity and wealth inequality have nothing to do with each other. Wealth inequality is not about production. It is about how production is divvied up. The con here is to slip in as an unstated premise the idea that production and inequality are linked, then proceed from there, and hope no one will notice.
Great read.
You know these kinds of explanations where conveniently no one in power is at fault are a bunch of crock when they can’t even define basic terms.
Like ask somebody who advocates this stuff to define what it means to be ‘high skill’. It is laugh out loud funny – just try picturing our criminal banksters having more useful skills than cello players or daycare workers or home healthcare aides or school cafeteria cooks.
Common stock as private money AUTOMATICALLY distributes surplus value to the workers.
But why should a business “share” when it has a government-backed credit cartel to steal the workers’ purchasing power with?
We are sold ‘being open for business and free market disciplines’ in the same way we are duped into buying interest rate swaps and in paying half the rise in any stock market we invest in in fees. My guess is a lot of stuff is sold to us as neutral technology (capital, banking and on to softer skills like leadership). Big data tells us technology steals.
Technical unemployement? Technique? Makes me think of quirky Jacques Ellul…I’m still not sure whether he makes any sense.
http://en.wikipedia.org/wiki/Jacques_Ellul#On_technique
Well gee there’s a pretty simple solution to inequality. Have the balls to tax the guys at the top and produce institutions that support the elevation of the lower class.
But no, in modern oligarchies (US, Russia, parts of Europe) it’s considered politically sensitive to go after offshore money, or to close loopholes that prevent estates from being properly taxed, etc.
Ignore the society that has helped facilitate the building of the wealth, and focus ONLY on the individual, that’s the Baby Boomer legacy. Benefit from the institutions your parents built and ignore the next generation because, hey, it’s a tough world right!?
I didn’t mean to exclude the obvious culprits of China, parts of Latin America, etc. — they’re just as much the problem.