In the second part of his reply to the White House’s slanders against socialism, Alan Woods addresses the reality of life for American workers under capitalism. Since 2008 they have seen inequality skyrocket, endured long hours in multiple jobs, and faced cuts to essential services – all while the parasitic bankers receive state handouts. The ‘American dream’ is dead – and socialism is reaching a bigger audience.
The meaning of capitalist exploitation
Karl Marx explained long ago that the profits of the capitalists are really the unpaid labour of the workers. The relationship between wage labour and capital is therefore intrinsically antagonistic. This is true even in favourable periods, when wages are rising, as Marx points out:
“We thus see that, even if we keep ourselves within the relation of capital and wage-labour, the interests of capitals and the interests of wage-labour are diametrically opposed to each other.
“A rapid growth of capital is synonymous with a rapid growth of profits. Profits can grow rapidly only when the price of labour – the relative wages – decrease just as rapidly. Relative wages may fall, although real wages rise simultaneously with nominal wages, with the money value of labour, provided only that the real wage does not rise in the same proportion as the profit. If, for instance, in good business years wages rise 5 per cent, while profits rise 30 per cent, the proportional, the relative wage has not increased, but decreased.
“If, therefore, the income of the worker increased with the rapid growth of capital, there is at the same time a widening of the social chasm that divides the worker from the capitalist, and increase in the power of capital over labour, a greater dependence of labour upon capital.
“To say that ‘the worker has an interest in the rapid growth of capital’, means only this: that the more speedily the worker augments the wealth of the capitalist, the larger will be the crumbs which fall to him, the greater will be the number of workers than can be called into existence, the more can the mass of slaves dependent upon capital be increased.
“We have thus seen that even the most favourable situation for the working class, namely, the most rapid growth of capital, however much it may improve the material life of the worker, does not abolish the antagonism between his interests and the interests of the capitalist. Profit and wages remain as before, in inverse proportion.
“If capital grows rapidly, wages may rise, but the profit of capital rises disproportionately faster. The material position of the worker has improved, but at the cost of his social position. The social chasm that separates him from the capitalist has widened.” (Marx, Wage Labour and Capital, in Marx-Engels Selected Works, 1970 ed., vol. 1, p. 167)
This is certainly the case in the USA, where profits have been booming, while wages have largely stagnated and the share of workers’ wages in the wealth created by them has fallen significantly. A report by the Economic Policy Institutes (August 2018) states that:
“From 1973 to 2017, net productivity rose 77.0%, while the hourly pay of typical workers essentially stagnated – increasing only 12.4% over 44 years (after adjusting for inflation). This means that although Americans are working more productively than ever, the fruits of their labours have primarily accrued to those at the top and to corporate profits, especially in recent years.”
The rich have got steadily richer after the 2008 financial crisis. In 2012, the top 10 percent of earners took home 50 percent of all income. That is the highest percentage in the last 100 years. By 2015, America’s top 10 percent already averaged more than nine times as much income as the bottom 90 percent. And Americans in the top 1 percent averaged over 40 times more income than the bottom 90 percent.
Since the rich got richer faster, their share of the pie grew bigger. The wealthiest 1 percent increased their share of total income by 10 percent. Everyone else saw their piece of the pie shrink by 1–2 percent. Even though the incomes of the poor improved in absolute terms, they fell further behind when compared to the richest. As a result, inequality is steadily worsening.
Obscene profits are being made by the big capitalists. The CEO of Marathon petroleum made $19.7 million, 935 times that of one of the company’s median workers ($21,034). Whirlpool's CEO made $7.1 million, 356 times that of its average employee pay of $19,906. Honeywell's average worker pay is $50,000. Its CEO made $16.8 million, or 333 times that.
This trend is not confined to the USA. There is, in fact, a global trend towards increasing income inequality across developing and developed economies. First, real wages have stagnated for the majority of the population despite increasing productivity due to anti-labour policies, which undermine collective bargaining. Second, there has been an increasing accumulation of wealth at the top through decreasing taxes for corporations and people with high incomes.
David Autor, an economist at M.I.T., produced a paper together with four other economists entitled “The Fall of the Labor Share and the Rise of Superstar Firms.” In it we read:
“Industries are increasingly characterized by a ‘winner take most’ feature where a small number of firms gain a very large share of the market.”
Among economists, one of the most-discussed developments is the precipitous decline in the percentage of total economic output flowing to labour. In a 2016 paper, “Declining Labor and Capital Shares,” Simcha Barkai, a professor of finance at the London School of Business, found that the decline in labour share produced a big winner, the profit share, which rose from 2 percent of gross domestic product in 1984 to 16 percent in 2014. Barkai writes:
“To offer a sense of magnitude, the combined shares of labor and capital decline 13.9 percentage points, which amounts to $1.2 trillion in 2014. Estimated profits in 2014 were approximately 15.7%, which is equal to $1.35 trillion or $17,000 for each of the approximately 80 million employees in the corporate nonfinancial sector.”
In other words, shareholders and business owners amassed profits amounting to $1.35 trillion or $17,000 per employee as a result of the increase in profit share. In fact, the gap separating workers and capitalists, rich and poor, is greater now than at any time in the last one hundred years – that is, since the time when Teddy Roosevelt denounced the rapacious rule of what he called the Robber Barons.
What economists’ technical language can mask is that this amounts to a lot of pain for a lot of people. The inexorable growth of inequality between rich and poor in the United States is by no means an invention of the left. It is an empirically verifiable fact that is causing increasing alarm by the staunchest defenders of the capitalist system.
This explains to a large extent why the ideas of socialism are gaining an ever-growing audience in the United States of America. It also exposes the lie that the interests of workers and capitalists are identical and underlines the fact that the fundamental fault line in society is the antagonism between wage labour and capital.
Now for the little matter of motivation. The document informs us that:
“In assessing the effects of socialist policies, it is important to recognize that they provide little material incentive for production and innovation and, by distributing goods and services for ‘free,’ prevent prices from revealing economically important information about costs and consumer needs and wants. To this end, as the then–prime minister of the United Kingdom, Margaret Thatcher (1976), once argued, ‘Socialist governments… always run out of other people’s money,’ and thus the way to prosperity is for the state to give ‘the people more choice to spend their own money in their own way.’”
So now we know: “socialism takes away private initiative and inhibits innovation,” Yes, we know the song, and we know the lyrics too. They have been familiar to us for a long time. But this tedious drone does not become more mellifluous with the passing of time.
But hang on a second! You say that socialism does not provide any initiative for workers. But what initiative do workers have under your system?
Workers in the USA work long hours, often in very bad conditions, and all too often have to take several jobs in order to survive to the end of the month. A worker gets up early in the morning, struggles into work, works right around-the-clock, comes home mentally and physically exhausted, falls asleep in front of the television, then wakes up in the morning and starts the whole wretched routine all over again. Surely people must ask themselves whether this can be described as really living life?
There is a story circulating about Donald J. Trump, which may or may not be true, but is certainly enlightening. The president was invited to a dinner by some of his fellow billionaires in Manhattan. During his after-dinner speech, he boasted in his customary, overblown manner: “I have created a million new jobs.” The waiter – probably a poor Latino immigrant – was heard to remark: “I know, Mr President. I’ve got three of them!”
The capitalists have plenty of material incentives: to acquire huge fortunes by squeezing surplus value out of the sweat of the workers. The latter, by contrast, are only ‘motivated’ by the need to survive, to earn enough to pay the monthly bills and the rent, to stop them and their families being thrown onto the streets. Only in the latter case, the word ‘motivation’ must be replaced by another word: compulsion.
End of the American dream
In the past, we had the so-called American dream. Many people believed that if they worked hard enough, sacrificed, and saved money, one day they might be able to climb out of the working class and become a wealthy businessman or woman. No longer! The American dream has turned into the American nightmare. No matter how hard you work, you never save enough money to change a life. Things always seem to remain the same. In fact, things seem always to be getting worse.
In the past, even poor people could hope that things would be better for their children. Every generation of young Americans could look forward to a life that was better than that of their parents. No longer! Facts and figures prove that the present generation of young Americans cannot expect a better life than their parents. On the contrary, life will get tougher, meaner, more unequal, more unjust and more uncertain than ever before.
On all these facts, the authors of the document have nothing to say. The sum total of their wisdom is to warn the American workers and youth that socialism provides them with no incentive. What possible incentive they have under the present system, they do not say.
“This is an empirical report about socialism that takes as its benchmark current US public policies. This benchmark has the advantage of being measurable, but it necessarily differs from theoretical concepts of ‘capitalism’ or ‘free markets’ because the US government may not limit its activity to theoretically defined public goods.”
It is impossible to understand the meaning of this paragraph – even if one could cut one’s way out of its tangled jungle of grammar and syntax (which in itself would be a considerable achievement). Let us first point out, that, far from being an “empirical report,” there is absolutely nothing empirical about it. Not a single fact is cited to back up a series of unsubstantiated claims and allegations. Yet they have the audacity to claim that this “empirical report,” which is not based on any identifiable facts, has the advantage of being “measurable.”
Never mind measurable! It would be a big advantage if it were at least intelligible.
But that is perhaps asking too much of a White House that follows the mental meanderings of one Donald J. Trump. What is certainly measurable is that in the United States of America, the rich are getting obscenely richer, while the poor are getting continuously poorer. That is a benchmark that is very clear even to the blindest of the blind. Sadly, it does not appear to be clear to the intellectual elite of the White House.
Having struggled with some difficulty to cut through the syntactical and grammatical jungle, we at last reach a clearing. With an audible sigh of relief, the authors of the document have finally arrived at the conclusion:
“Relative to the US benchmark, we find that socialist public policies, though ostensibly well-intentioned, have clear opportunity costs that are directly related to the degree to which they tax and regulate.” (My emphasis, AW)
Our friends in the White House kindly inform us that, although socialists may be well-intentioned, they cannot possibly compete with the huge successes and opportunities presented by the free market economy (referred to here as the “US benchmark”). Why not? Because of the degree to which they tax and regulate.
Now, everybody knows that if there are two words guaranteed to bring dedicated Republicans into a state of apoplectic rage, those words are taxation and regulation. To even utter such words is regarded by them as approximately equivalent to swearing in church on Sunday.
Taxation and regulation are the death of free-market economics, as we all know. The markets work best when there is no government involvement at all. When left to themselves, the markets will solve all the problems. There will be no crises and we will all live happy, productive, and above all, profitable lives.
This comforting theory, which was enthusiastically embraced by Margaret Thatcher, who is warmly quoted in the document, used to be contained in every school textbook. It was repeated ad nauseam in every university seminar room. It occupied a similar place in the shibboleths of political economy as the Ten Commandments in the Bible.
Nowadays, a growing number of economists – not necessarily left-wing – have concluded that some degree of regulation is absolutely necessary to prevent the appalling mess that we saw in 2008. They realise that a new crisis is inevitable. And they are quite correct, because such crises are inherent to the capitalist system and quite unavoidable in it.
But our White House intellectuals cannot bring themselves to agree with his. They cannot stomach the idea of regulating the capitalist economy, which, according to them, works perfectly well on its own. The lessons of 2008, or for that matter 1929, are for them a book that is sealed with seven seals.
As for taxation, that is an unforgivable interference in the fundamental motor force of capitalism. It interferes with the holy of holies: profits. Never mind that many schools in the richest country on earth are falling to pieces. Never mind that America’s health system is failing millions of people, and is regarded with horror by the citizens of other countries. Never mind all these things, as long as the profits of the big banks and Wall Street sharks are safeguarded.
Actually, in the US and all other capitalist countries, the bankers and capitalists pay little or no taxes. They pay smart lawyers to find loopholes in the laws, which allow them to salt away billions of dollars in tax havens in the Caribbean and elsewhere. Their continuous harping on the burden of taxation is entirely phony.
In reality, it is the working class and the middle class who pay the lion’s share of the taxes. But that did not prevent Trump from introducing legislation to drastically reduce the taxation of the rich, while giving a few crumbs to the rest. So here we have the real benchmark of US economic policy: rob the poor to help the rich. That is a very fine incentive – to the richest 1 percent of the population, but not at all to the remaining 99 percent.
The “efficient market hypothesis”
The economists present us with a beautiful picture, whereby the free market would solve all our problems without any regulation or interference from the state. According to this theory, supply and demand always balance each other out in the end, so that the market acts as a kind of pendulum, swinging smoothly from one point to another, but always returning to a perfect equilibrium.
The wonderful idea that the capitalist market economy will automatically regulate itself without any interference from the state was enshrined in a theory known as the efficient market hypothesis. This was supposed to be a new idea. As a matter of fact, it was a very old idea. It used to be known as Say’s Law – a piece of nonsense that was systematically demolished by Karl Marx about a 150 years ago.
Unlike the theoretical economists of the university seminar room, the billionaire George Soros has a fairly good understanding of how markets work in practice, since he has made a lot of money out of them. He said the market was not like a pendulum but a wrecking ball – the kind used on construction sites to demolish buildings. He was shown to be correct in 2008, when overnight, the free market economy collapsed like a house of cards.
What did the bankers and capitalists do at that time? Did they say: “The state must not interfere. The markets will sort themselves out in the end.” No, they did not! They came running to the state with their arms outstretched, demanding large amounts of public money to save them. And then something extraordinary occurred. George W. Bush, a Republican president and a firm believer in free-market economics and no state intervention, came running with an open chequebook. “How much d’ya want, boys? A billion? Take a billion! Ten billion? Here, take it all! After all, it’s only public money.”
And the bankers took it – all of it. That, and the colossal expense of the Afghanistan and Iraq Wars is the origin of the infamous deficit – about which the authors of this document have absolutely nothing to say. The fact of the matter is that in the Year of Our Lord 2008, the capitalist system was bailed out with eye-watering amounts of public money.
In the Communist Manifesto, Marx and Engels wrote that “The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie.” That is precisely what we see here. In 2008 the capitalist system was saved by the intervention of the state – that very same state that was not supposed to play any role in the economy. The private banks and corporations were propped up by the state like a sick man on crutches. Without that, they would have collapsed.
The priority of the capitalist state is to preserve the present order. Its overriding concern is to guarantee the profits of the private sector, that same private sector that wrecked the world economy in 2008. Naturally the boys of the CEA have nothing at all to say about all this. It is too embarrassing to admit that their much-vaunted market economy showed that it was (quite literally) bankrupt and had to be bailed out by the American taxpayer. Nor are they anxious to tell us what the opportunity costs of this operation were, or how the generosity of the US taxpayers was rewarded.
Let us spell this out in simple language, so that even the members of the CEA can understand it. The private banks and corporations received the equivalent of a huge blood transfusion that drained the public finances dry, leaving them in a state of chronic and life-threatening anaemia. An immense black hole in the private finances of the big banks was miraculously transformed into a gigantic black hole in the public finances. Ever since that time, we have been told that there is no money for schools, health, pensions, roads, houses, or anything else that is not considered a priority by the capitalist system.
Now, if a worker wrecked a machine in a factory, he would be immediately sacked and possibly sued for damages. But if a gang of highly-paid bankers wreck the entire world financial system, they are not sacked, they are not sued, they are not sent to prison for fraud, as they richly deserved. Instead, they are rewarded with vast quantities of public money – money stolen out of the pockets of the poorest, most vulnerable layers of society. It is austerity for those at the bottom and handouts for those at the top. This is Robin Hood in reverse!
In part three, Alan will respond to the White House's take on so-called Scandinavian socialism, Russia and Venezuela...