Six ways of exploitation

Update: 5/3/12 – I made a few changes in how I treat luxury consumption.

Here’s a list of six ways our system economically exploits people. I don’t at all mean to imply there aren’t many more.

1) The age old tradition of forcing workers to produce luxury goods for the ownership class.  The technique hasn’t really changed much.  From the Roman Empire, to the feudal era, right through to today the simple logic entails nothing other than paying workers less than what they produce so that luxury goods can be extracted.  Part of their work goes to provide their own sustenance while the remainder, the surplus value, fulfills the consumption desires of their betters. This kind of exploitation looks like a tax on the entire working class.  Workers in the luxury goods sector receive a salary and consume goods but they don’t produce anything of value for the non-ownership class.

Luxury extraction by the ownership class is of course a key feature of our world but it’s not the main power driver of capitalism.

2. Monetary power derived from profit generated within the purely private capitalist economy.  This is actually an absurdly simple concept but it’s very different from how it’s normally understood.

We start with the observation that the ownership class as a consolidated entity has full control of all productive corporations and banks.  A critical insight evolves from this: whatever the ownership class decides to spend on wages must recycle back to it in either consumption of their products or in retained deposits at their banks from unspent worker savings.  In a purely private economy, it’s a zero sum game.

With this thought in mind, it’s helpful to consider the capitalist sector of the economy as a separate entity which, I think, is best seen as a process of accumulation of money for purposes not of luxury but of power, the famous M-C-M in Marxian terms.  But at first sight, it’s a bit mysterious given that the economy is zero sum.  Whatever is emitted in wages comes back, assuming workers are unable to save, but that’s it.  Nothing in the private economy exists beyond the wage so it would seem impossible to generate profit or power through simply paying out and receiving wages.  We’ll discover, though, that capitalism is very well named in that the main means of achieving power is through nothing other than a double capitalization.  Let’s look at an example to illustrate.

Assume a non luxury goods capitalist economy with a sole owner who pays workers a wage and then gets it back when it’s spent in his or her store.  The company’s income statement would always be break even as profits would be impossible.  The very concept of setting a profit margin is absurd since the only source of demand is the wage.  How, then, can a profit be created?  The only way this can be done in a private economy outside of perhaps pure theft is to effectively cook the books, and that’s where the accountants come in – they offer the owner our first trick of capitalization.  They divide the wage outlay into two parts – an expense part and another called “investment” that they deem eligible for capitalization, i.e. not expensed. So, in our example, if part of the wage outflow is used to produce equipment for the operation that lasts for an extended period, then magically we find that profit arises.  As in the past, revenue is equal to total wages paid but “expenses” are now only that portion of wages that the accountants decree can’t be capitalized.  Out of thin air, we now have a concept called profit.  If there’s more than one company, then there will be competition for the profit since there’s no guarantee the workers will spend their wage on the company doing the capitalizing.  Capitalizing generates profit for the system as a whole but there’s no guarantee it will be captured by any particular firm.

But where’s the exploitation?  Revenues coming in still don’t exceed the wages paid and we don’t assume the owner is taking any spread over the wage.  In fact, he or she can’t.  What worth then is profit when it’s no more than an accountant’s concoction?  This is where the second capitalization comes in and where the primary means of power in capitalism arises.  The profit, a book keeping process of not expensing some of the wages paid, is itself capitalized and magically transformed into monetary power.  In our example, if we assume $1,000,000 of wages were deemed capitalizable and thus profit, monetary power of $20,000,000 would arise if it were capitalized at 5% or a 20 price-earnings ratio, completely reasonable numbers in today’s economy.  Without any apparent exploitation, the owner suddenly amasses vast power vis a vis the workforce and a starkly unequal society emerges.  Since the laws of economies of scale limit the number of companies that can exist in the market, most individuals must be workers.  This type of economy can lead to nothing other than gross inequality and is therefore unjust and exploitative from a democratic perspective.

3. Profit generated from government deficit spending.  We find that government deficit spending in the economy greatly accentuates the power of the ownership class.  Whereas the private system is zero sum and requires an accounting capitalization trick to provide profit, every deficit penny spent by the government is an increment of revenue coming from outside the system going right into profit and capitalized monetary power.  Deficit spending, therefore, is a major contributor to inequality within the capitalist system.  Of course unemployment would be starkly higher without the employment created by government, but it shouldn’t be forgotten that the system is rigged so that even public spending increases private power.

Why then does it seem corporate interests oppose deficit spending?  Largely an illusion – what’s opposed isn’t deficits, it’s taxes and working class power.  In the US, we’ve had huge deficits under past Republican administrations centered around tax cuts and even Dick Cheney famously and rightly proclaimed that “deficits don’t matter”.  Paul Ryan’s current budget is a perfect example, the goal clearly being to reduce taxes and attack working class power but not to do too much with the deficit.  It seems more confusing in the EU as the drive to austerity is so totally self defeating.  It can’t really be about national deficit fears as the European Central Bank could effortlessly buy the debt.  One part of the answer is certainly a concerted and historically significant political attack against what has been the strongest working class on the globe and the only real model of a social welfare economy.  Fear of European social democracy and even something approaching socialism has been an enduring nightmare of the ownership class since the end of World War II.  The current crisis is being used as the excuse to finally abolish it, even at the short term cost of reduced profits.  I’d couple that with with the exercise of geopolitical dominance on the part of Germany.

4. Interest paid on government debt.  The governments in the US, the EU, and other major states issue their own currency and have therefore no need to borrow.  This being true, there’s no need to pay an interest rate on a debt having no purpose.  Every basis point of interest paid on risk free government debt is a subsidy to the ownership class.  Today’s rates are low by historical standards but even at the current US 10 year yield, they represent an annual monetary transfer to the ownership class of $19,290 per million of wealth.

5. Economies of scale and technological exploitation as the system cannot easily spread the benefits of productivity to the whole population.  Rising productivity means less need for employment and therefore a great number are forced into marginal living standards.  Economists would object and say other productive options for those made redundant will arise.  Such an ascertain is beyond improbable though.  Unemployment and poverty have always been huge problems and it’s quite clear that rising productivity over the past decades hasn’t improved the average quality of life.  People are simply not finding other productive alternatives.  Geometrically advancing technology going forward is bound to make things even worse.

6. Exploitation within the non-ownership class.  We don’t read as much about this form of exploitation but it’s a huge form of injustice in the world.  Why is it that lawyers, doctors, mortgage bankers, engineers, and generals make such large multiples over cooks, clerks, garbage men, and privates?  Economists say it’s the neutral mechanics of supply and demand but that doesn’t seem very likely.  There may be fewer eligible individuals for some jobs due to natural variation in intelligence or other traits but there are fewer available positions as well.  Why wouldn’t supply and demand meet at the same pay level?  And the differences in pay have existed for decades, even centuries.  In a sound market, wouldn’t the pay differentials be a powerful signal for the working class to produce more doctors and generals versus cooks and garbage men?  And shouldn’t the more prestigious and enjoyable jobs actually pay less?  There are certainly a lot of very qualified people who would rather be a general than a private, even if the pay was the same or less.  I think the inescapable truth is that the labor market is mostly not a market at all but simply a reflection of historical class based living standard differentials coupled with monopoly like powers that effectively limit competition.

I see the huge wage differentials within the working class as a micro version of the luxury goods industry referred to in number 1 above.  Lower scale workers are squeezed to subsidize the upper scale and it’s to the benefit of higher paid workers to assure the continuance of the differential.  I wouldn’t call this capitalist exploitation either as you’d think the owners would be indifferent to how the wage is divided.  The owners use low wage workers today to satisfy the wants of the middle and upper middle classes but that’s just because of how wages are split up.  The ownership class would seem unaffected and just as profitable if the wage levels of Mexican farm workers and dentists were reversed.  Only the types of products and the beneficiaries within the working class would be affected.

We can extend this observation to international terms of trade as well.  As far as profit is concerned, the ownership class should be indifferent to whether the north or the south is hierarchically higher in the caste system.

And I think you could even extend it further and possibly blame much of global poverty on exploitation within the working class itself.  Not only are the owners theoretically indifferent to whether wages are flat or highly unequal, and also indifferent to whether the terms of trade are beneficial to one nation or another, they should also be economically indifferent to something radical like expanding wages to cover everyone on the globe.  Wages, remember, are a zero sum game to the ownership class and involve no cost.  The harm to expanding a living wage to everyone wouldn’t really fall too heavily on the small class of owners if at all; it would fall I think much more on the middle and upper middle classes.  Our first thought may be that it would be vastly inflationary to extend livable wages to the ocean of poverty stricken people on earth.  But that shouldn’t be true over the medium term as production is re-oriented to take account of the change in purchasing power.  Vastly more resources would be applied to things like food, shelter, clothing, sanitation, etc. and taken away from the consumption luxuries of the upper tier of workers.  All while the new production, fully capitalizable as before, would continue working just as well for the owners.

I think we must conclude that the middle and upper tiers of the working classes are just as guilty of exploitation as their superiors and they’re a key reason the system perpetuates itself.

Wow, that’s a hell of a lot of exploitation and I’ve reached my limit for today.  Nothing really earth shaking here of course but I at least found the exercise interesting.