New figures reveal growing concentration of wealth in the hands of the few

Class struggle is alive and kicking, and it’s the working class that’s getting kicked. The Economist reports that in the four years leading up to 2012 wages in the USA grew at just 2.1% per year, whereas in the four years prior to that the figure was 3.4% per year.

mountain-of-cashModern economics sells us the line that the ratio between the share of GDP going to labour and that going to capital always remains constant. That way, any increase in the boss’s profits equals a corresponding increase in the workers’ wages. Leaving to one side for a moment the obvious question – why do the bosses get a share of GDP at all when it’s the workers who actually produce the wealth? – we should examine first whether what today’s mainstream economists tell us is actually true.

The figures for the last eight years, quoted above, suggest that this constant ratio is a myth. In fact the figures for the last 30 years, let alone the last eight, also point in that direction. In OECD countries the early 1990s saw workers taking 66% of GDP in the form of wages, while that figure had fallen to 62% by the early 2000s. In the late 1970s the labour share of GDP stood at 75% in Spain, and 80% in France – that figure too has since taken a severe tumble. In the USA, the last 30 years has seen a reduction from 70% to 64% of GDP taken by wages. Meanwhile Norway and Sweden, held up as models of “responsible” capitalism, have seen labour’s share fall from 64% to 55% of GDP and 74% to 65% of GDP respectively since the 1980s. So why is it that modern economics still accepts as correct ideas that can’t be squared with the facts?

It’s common to see bourgeois economists desperately clinging to theories that have long ago been scuppered by economic fact. In many ways it is not surprising because many of these academics and strategists will have built a career through parroting the idea that the share of GDP to labour and capital remains constant. Michael Joffe, professor of Economics at Imperial College, London has recently raised this point, and the UK Treasury is to host a conference to discuss the crisis in modern Economics teaching that sees students taught theories that are known to be false. Joffe explained that “there is a lot that is taught on economics courses that bears little relation to the real world” and pointed out that many people would like other economic theories to be taught at universities that explain the economy better than the neo-liberalism that currently dominates syllabuses. One suggestion he mentions is of course the theories of Karl Marx.

This begins to bring us towards an answer as to why modern economists allow themselves to be blindly guided by a false theory. To accept that the division of GDP between labour and capital is not a permanently fixed ratio is to accept that it can be moved and changed, and such movement would primarily be caused by pressure from either capital or labour. In other words the facts prove that Marx’s understanding of society as being divided into economic classes, each struggling for a larger share of society’s wealth, is the correct way to interpret the modern capitalist world.

Marx points out that wages and profit are closely interlinked because they are both paid out of the same pot – the nation’s GDP. This means that for a boss to increase his profit, the workers must lose out on wages, and vice versa. It’s not possible to increase profits without decreasing wages, and it’s not possible to increase wages without decreasing profit. The GDP of a country, in essence, reflects the limited amount of wealth to be shared out between the classes.

Both classes therefore struggle with each other for a larger slice of the pie. The bourgeoisie, pushed by their constant hunt for profit and their own internal competition, will always attempt to expand their share. This can be done through direct attacks on wages or by cutting welfare, increasing wages below the inflation rate etc. The workers on the other hand, have an interest in struggling to defend and expand their position in the face of constant attacks of the Bourgeoisie. The result is trade unions and workers’ movements that fight for the minimum/living wage etc, and bosses who fight for less regulation of employment conditions, and smaller pay increases. As long as the main levers of power in society, that is the state and the commanding heights of the economy, are under the control of the bosses they will use these in order to enforce their will in the long run.

The Economist admits that the bosses, pushed by internal competition, are desperate to drive down wages to make bigger profits. It highlights businesses turning to cheaper and less regulated labour in the developing world as a method for raking in higher profits and putting pressure on workers in developed countries to accept a lower wage. It also points to developments in technology and innovation as automating huge numbers of jobs – both mental and physical – thus leaving correspondingly huge numbers without work or with a lower wage. It mentions the fact that trade unions have lost a lot of the power that they once had 30-40 years ago, a direct result of the sustained attacks on unions by the bourgeois state and media over that period. The result is that “economic power has shifted in favour of capital, and away from labour”.

Paradoxically, this isn’t all good news for the capitalists. By pursuing ever greater profits they inevitably drive down wages through automation and by accessing to new sources of cheap labour on the world market. The problem is that wages also make up the demand which keeps businesses afloat. With less money in the pockets of wage-earners, fewer commodities can be purchased and so less profit can be made. The race for profits leaves the capitalists with a huge crisis – just like the one we are living through today.

And yet this contradiction at the heart of capitalism can never be resolved. The short-sightedness of capitalists trying to make as much money as possible out of each investment with no thought for the future is a fundamental feature of the system. If one boss passes up an opportunity to make loads of money through greater exploitation of workers or the environment, another boss would seize the chance to make the profit and put his competitor out of business. This is the nature of capitalist competition – the bourgeoisie cannot afford a long-term perspective.

This shortsightedness is obvious amongst the British bourgeoisie. For example, for the first time in 25 years, a new nuclear power plant is being built in the UK, but no British capitalists have been willing to invest in it – it’s being built using French and Chinese capital. This isn’t because British capitalists can’t afford investment – they have £750bn uninvested in low interest bank accounts – it’s that they aren’t willing to invest in a project that will take a relatively long time and considerably more investment (nuclear power tends to be cost effective only with lots of power plants) to yield big returns. British capitalists don’t want to wait that long.

We have pointed out elsewhere that levels of investment in the UK have been streaks behind those in other countries. Rather than invest in production British capitalists would sack workers, attack their pay and conditions and instead spend their money on speculation and other sources of short term gains. This accounts for the present recovery in British GDP growth, despite the continued cuts to actual production, the public sector and wages as a percentage of GDP. Although British capitalism is a particularly stark example of the short-sightedness of capitalism, the global crisis that is dragging on attests to the fact that every capitalist nation to one degree or another is suffering from the same disease that cuts wages (and therefore demand) in the interests of profit.

That this is an insoluble contradiction of capitalism is proved by the Economist’s feeble suggestions for a solution to this problem. One idea is increased privatisation of public services so that capitalists can make even more profit which would be distributed to shareholders thus giving more people more money. It’s true that privatisation often brings profit to the new private owners and those rich enough to afford shares in the business, but it is also true that privatisation also brings worse wages and conditions for the employees of the newly privatised business. The correlation between these two things is not a coincidence. The reason why private ownership of businesses increases profit is because these owners force down the wages of all the workers in order to pay the handful of people at the top. Increased privatisation exposes even more of the economy to this fatal contradiction – it makes the problem worse, not better.

Another suggestion is to offer improved education and training so that people who lose low-skilled jobs to machinery or cheaper  labour can instead get a job as a higher-skilled (and therefore higher paid) worker. This highlights another angle of the contradiction that cripples capitalism. If a capitalist were to invest in the education and training of highly-skilled workers he would be able to increase productivity, design new products and machinery and boost his productive capacity overall. This, after all, is the point of any investment in a business. So why aren’t capitalists doing as The Economist suggests? The question they should be asking is: Why bother investing in the raising of productivity when there is no market to sell the goods? The current sackings and closures (or “restructuring” as the bourgeois call it) are testament to the fact that the bosses are desperately trying to produce less in order to maintain their profits, this means that they have less incentive to invest in producing more.

The impoverishment of the masses and the concentration of wealth and capital in the hands of a small minority is a law of Capitalism and as long as the right of private ownership to the means of production exists this process will prevail. This was brilliantly explained by Marx more than 160 years ago when Capitalism was still in its infancy:

“Hitherto, every form of society has been based, as we have already seen, on the antagonism of oppressing and oppressed classes. But in order to oppress a class, certain conditions must be assured to it under which it can, at least, continue its slavish existence. The serf, in the period of serfdom, raised himself to membership in the commune, just as the petty bourgeois, under the yoke of the feudal absolutism, managed to develop into a bourgeois. The modern labourer, on the contrary, instead of rising with the process of industry, sinks deeper and deeper below the conditions of existence of his own class. He becomes a pauper, and pauperism develops more rapidly than population and wealth. And here it becomes evident, that the bourgeoisie is unfit any longer to be the ruling class in society, and to impose its conditions of existence upon society as an over-riding law. It is unfit to rule because it is incompetent to assure an existence to its slave within his slavery, because it cannot help letting him sink into such a state, that it has to feed him, instead of being fed by him. Society can no longer live under this bourgeoisie, in other words, its existence is no longer compatible with society.“ - Communist Manifesto

Capitalism has developed to a point where technology and globalisation, phenomena that have the potential to improve the lives of all people hundreds of times over, are actually making the lives of wage-earners worse. It has reached a stage where we have the capacity to educate and train people, produce and build everything we need, and give everyone a decent standard of living. But we’re not able to realise this potential because of the inherent constraints that the Capitalist system puts on the development of human society. This is the meaning of the rule of the bourgeoisie. And this is why the boot needs to be moved onto the other foot – it is only through irreconcilable struggle against this rule that we can address these problems.

To do so we should take Michael Joffe’s advice and look at Marx’s theories for that which capitalist economics is unable to provide – an explanation of the economy and a solution to falling wages and economic crisis. Marx points out that all commodities derive their value from the human labour that goes into producing them. This means that the wealth in society, i.e. GDP, is produced entirely by the working class. The fact that, under capitalism, a percentage of this wealth goes to profits for the bosses means that working class is not being paid the full value of the goods that it produces. Capitalism’s coercion of workers to spend a percentage of the working day doing unpaid labour is the essence of  Capitalist exploitation. The fact that this percentage of unpaid labour is increasing indicates intensifying exploitation.

To unlock the full potential of what humanity can achieve, these parasitic bosses must be cast aside and working class given full control of the wealth that they produce. Investment would then no longer be stopped because it didn’t make money for a tiny handful – it could take place on the basis of serving the needs of the vast majority. The bourgeois would then no longer be able to cream enormous profits off the labour of the workers at the expense of their wages and conditions. Investment and production could be planned with a long term perspective instead of frantic short-sightedness. Globalisation and technology would mean progress instead of misery. In short, the contradictions of capitalism would disappear and the enormous potential of human production and development would be set free from its fetters.

However, the classes into which capitalism divides society – the bourgeoisie and the proletariat – have irreconcilably opposed interests. The rule of the capitalists means the misery of the workers, while the victory of the workers would mean the total destruction of the capitalist system. There is no room for agreement, only struggle until the end. This fact is recognised by the bourgeois who use every tactic they can to attack the workers. The bosses seek to divide the working class, employed against unemployed, public sector against private sector, men against women, natives against foreigners etc. A divided class enemy is a weak class enemy. They bribe the leaders of the working class struggle, while undermining the ability of the workers to fight back using anti-trade union legislation, anti-working class media campaigns and in some cases, as proved by the Orgreave scandal, police brutality and outright lies.

But the fighting isn’t one sided. The reason the bourgeois fight so hard against the working class is because they know how powerful an organised workers’ movement can be. Strikes, occupations and revolutions are illustrations of workers attempting to take control of the wealth that they produce and leaving the bosses powerless in the face of the numerical and economic strength of a militant, class conscious movement. If the class struggle is to be resolved in favour of working class and the contradictions of capitalism swept away by socialist revolution, it is these methods we need to adopt.

As Marx explained in the Communist Manifesto, the constant intensification of the exploitation of the working class under Capitalism will equally intensify class struggle and prepare for the downfall of the system itself:

“The essential conditions for the existence and for the sway of the bourgeois class is the formation and augmentation of capital; the condition for capital is wage-labour. Wage-labour rests exclusively on competition between the labourers. The advance of industry, whose involuntary promoter is the bourgeoisie, replaces the isolation of the labourers, due to competition, by the revolutionary combination, due to association. The development of Modern Industry, therefore, cuts from under its feet the very foundation on which the bourgeoisie produces and appropriates products. What the bourgeoisie therefore produces, above all, are its own grave-diggers. Its fall and the victory of the proletariat are equally inevitable.”

Under capitalism, wages will continue to fall, profits will continue to rise and society will splinter more and more along class lines. Under such conditions, and under the pressure of global economic crisis, the class struggle will intensify. The attacks on workers signify that the bourgeois have already realised this, and the increase in union activity and activist movements signify that the working class are beginning to realise it too. This must be continued and pushed further. Marxists realise that there are no compromises under capitalism, neither we nor the bourgeois can afford to fight for half measures. To escape this crisis and the contradictions of the system, capitalists won’t hesitate to plunge society into barbaric living conditions. We must be equally resolute in our struggle against barbarism, and our demand for socialism.