Wages stagnate while profits soar

by Pete Brown
(CV #39, January 2007)

Bushites' admissions
Increasing inequality
Sobering statistics
Census report: more bad stats
Democrats on the attack
Continuing the campaign
Inequality: a capitalist tradition
Who gets the surplus?
The need for struggle
Socialism is the solution

. In the weeks leading up to Labor Day there was a flurry of new economic statistics in the news, and a discussion broke out on newspaper op-ed pages about the condition of the working class in America. Looking forward to the midterm elections in November, with the Republicans running as incumbents, Bush and his supporters tried to paint the economic picture in the brightest possible colors, while Democrats tried to blame Republicans for every negative phenomenon. But underneath the bourgeois electioneering, the fact is that things are not looking good for the average worker and are getting worse. This is a fact about the Bush era. But it's also a long-term trend that has grown worse under both Republican and Democratic administrations.

. First, some facts about the Bush era: Since the current economic expansion began in late 2001, productivity has soared. But workers have seen only small increases in nominal wages and salaries. For the bottom 80% of the work force, these raises have not been enough to keep up with rising prices of consumer goods. Wages and salaries now make up the lowest share of the nation's gross domestic product (GDP) since the government began recording the data in 1947. Meanwhile corporate profits have climbed to their highest share since the 1960s. Capitalist bankers refer to the Bush years as "the golden era of profitability. " Along with profits, personal incomes for the top 1% of Americans have exploded. In 2004, the top 1% of earners -- a group that included many CEOs -- received 11. 2% of all wages income, up from 8. 7% a decade ago and less than 6% three decades ago. The result is that the top 1% now holds a bigger share of total income than at any time since 1929, except 1999-2000, during the stock bubble.

. Pop economists like to say, "A rising tide lifts all boats. " But the basic lesson of the Bush years is that a rising tide of capitalist wealth lifts the luxury yachts of the rich, while the workers' rowboats are left scuttled in mud.

Bushites' admissions

. The situation has become so scandalous that the Bushites themselves have felt compelled to discuss the subject in public to try and defuse it as a political issue. It was first broached by Federal Reserve chairman Alan Greenspan (first appointed by President Reagan) back in June 2005. Testifying to Congress about the state of the economy, Greenspan noted the growing inequality in incomes and warned that this was a threat to "democratic capitalism. " After Greenspan retired, the new Fed chairman Ben Bernanke testified to Congress in August 2006 that the falling livelihoods of the masses could possibly derail the trade liberalization of recent decades (which Bernanke of course supports). Bernanke advised politicians to try and devise policies that would share out the benefits of globalization a little bit. This was something new, for these advocates of free trade and deregulated capitalism to be calling for government guidance of the free market.

. The growing inequality was also discussed by Bush's new Treasury Secretary, Henry Paulson. In August 2006 Paulson acknowledged in his first major policy speech that economic inequality is rising in America. But Paulson attributed this to rising wages for the highly educated and said nothing could be done about it; it's just one of those odd external effects of the wonderful free-market economy. Bush administration people are so arrogant that for one of them to even admit a little bit of a problem is quite a novelty. But it's typical of them that Paulson followed this admission with the immediate assertion that "nothing can be done. "

. Paulson's speech was followed by President Bush's Labor Day message to American workers in which Bush proclaimed, "Things are good for American workers. " This is ridiculous. Even though the economy has been expanding for the past five years, the average worker has yet to see any gain in wages despite strong productivity growth during these years. Workers are producing more per person, per hour, but are not being allowed a share in the new wealth they've created. Workers are toiling harder than ever before, with the intense speedup of new productivity campaigns. The lowest paid sections of the work force continue to slide into poverty at an accelerating rate, as the federal minimum wage has not been raised for over nine years. Job insecurity is intense as corporations downsize and outsource jobs. Workers are increasingly dependent on credit cards and home equity loans just to pay their heating and gasoline bills. Meanwhile corporations are gutting pensions and health care plans. And the outlook for workers' children continually looks bleaker as inner-city schools deteriorate, and college tuition costs skyrocket. Public state universities are turning into fortresses of the privileged, as grants to students from high-income families are now, on average, higher than grants to students from low- or middle-income families.

. Bush followed his lie about "things are good" with the qualification that there might be a few minor problems, but these are due to "impersonal market forces" for which there are no government solutions. So Bush, like Paulson, pushes all problems off to the market and refuses to consider any ways to soften the growing impoverishment of many workers.

Increasing inequality

. One thing you can depend on with Bush's people: when they tell a little bit of truth, it's only for the purpose of promoting a bigger lie. Paulson promotes the idea that highly skilled and educated workers are actually doing better than ever in today's economy. He says this is the result of global free trade which seeks out such workers, bids up the price of their labor and rewards them according to their skills. Things may look bad to the unskilled, but if they would only get off their butts and acquire the needed skills, they too could make a million bucks.

. But while some of the highly skilled are becoming super-rich in the new global marketplace, it's not true that all of them are. The same forces that drive the unskilled into poverty also simplify skilled workers' jobs, cheapening their labor. Many draftsmen and machinists, for example, found themselves displaced by computer-aided drafting and numerical-controlled machining in the 1980s and 90s; some of them made the transition to the new economy, but many others were driven out of manufacturing employment altogether. The average college graduate is doing better than workers without a degree, and graduates' pay has stayed ahead of inflation a little bit the last few years. But just barely. It's nothing like the way the pay of corporate execs, CEOs and the very rich have exploded. The market forces of global capitalism do not "reward hard work", as the myth says, but reward capital; it's the very rich who get richer, at an ever increasing rate.

. It isn't just unskilled, uneducated workers who are suffering. Many ordinary workers with high school and some college are in trouble, facing growing insecurity, declining wages and benefits. The Bushites think it's just fine if these workers are driven into poverty. They think this is "natural selection" for transition to a high-tech economy. But many of the fastest-growing occupations in today's society do not require high skills. There are vast numbers of new jobs opening up in retail sales, food preparation, janitorial services, etc. These are jobs that require general intelligence and skills, but no college or highly specialized training. The people who fill these jobs have the same personal needs as doctors, lawyers, and high-tech engineers. They need health care, and they need sufficient pay to raise a family and maintain their dignity. And the capitalists need these workers to generate the immense profits they're making in retail sales, health services, and other rapidly growing service industries. But the capitalist market doesn't provide these workers with the basics. For six years Bush refused to consider a raise in the minimum wage, which is constantly declining due to inflation. Since the midterm election was won by the Democrats, who promised to make a raise in the minimum wage a top priority, Bush has offered to consider a raise. But it remains to be seen how much this is worth. In his hands-off attitude to the market Bush is simply acting as a political shill for the cutthroat capitalists who run these industries.

. Growing inequality is not just a result of the last couple years or the six years of the Bush administration. Statistics bear out that this is the dominant trend of the last generation, starting from at least the early 1970s. This shows that generating inequality is a permanent, ingrown part of normal capitalist economic development. It's a constant tendency that may be stifled or modified in various ways, at different times, but it's something that workers have to collectively, constantly be on guard against or suffer the consequences of being driven into poverty.

Sobering statistics

. New statistics about the economy are quite sobering. Nowadays the only ones receiving raises that outpace inflation are those at the very top of the pay scale. Only workers making over $80,000 a year are getting raises big enough to keep ahead of inflation. Government stats show the average person's income continuing to rise, but this is only because those at the top are receiving such huge increases that they skew the average up. Most workers are actually suffering a loss.

. The drop in wages is especially notable because productivity has risen steadily the last few years. It's a basic article of faith among bourgeois economists that productivity gains are the basic engine of wage gains, and that the latter always follow the former. When workers ask for higher wages, they're told "You'll get more when you produce more. Work harder and you'll get your share. " But the behavior of the economy the last few years shows this to be a lie.

. Until recently there were some factors in the economy which tended to obscure the growing inequality in pay. For one, up until last year stagnating wages were somewhat offset by the rising value of benefits, which caused overall compensation for most Americans to appear to be increasing. This was due to the rapid rise of health care costs, which outpaced the general rise of prices (inflation). When employers report how much they're paying workers, they report their increased premiums for health benefits as increased compensation to the workers, even though the workers themselves are not receiving it as wages. This was only an apparent rise, because workers' take-home pay did not increase, nor did they receive any better health coverage. On the contrary -- in many cases workers were forced to pay higher health care premiums and co-pays themselves, to maintain the same health care coverage. But now in the last year workers' benefits have also failed to keep pace with inflation --not because the rise of health care costs has moderated, but because employers are cutting back so rapidly on workers' health care coverage. So now, on top of stagnating wages, we have a situation where more and more workers are left out of employer-sponsored health care plans.

. Another thing that obscured the growing wage stagnation in recent years was the rapid rise in home values. Workers who owned their own homes saw the value of these houses jump. And they could use this increased value to pay bills by taking out home equity loans. So workers who were struggling to make ends meet were able to put off the day of reckoning by stretching their credit. This didn't mean any increase in wages, of course, but it meant workers could keep up their consumption levels. But the housing bubble has now officially burst, and home prices are declining. Rising interest rates on adjustable-rate mortgages and home-equity loans have left indebted home owners with heavy burdens of monthly payments. Many workers have actually lost their homes or been forced into bankruptcy.

Census report: more bad stats

. In August the U.S. Census Bureau came out with its midterm (five-year) report about trends in population, income, housing, etc. The bureau's report showed that for the years 2001 through 2005 the average family got ahead only by working at more jobs that paid less money. Average household income rose, but that was only because more people in the household worked. Housewives, retirees, and teenagers were able to get part-time jobs, and so family income rose. But earnings for individuals working full-time jobs actually fell in real terms. Wages for full-time working men dropped for two straight years, 2004-05, and for full-time working women wages dropped for three straight years, 2003-05. Things were even worse for blacks; households headed by blacks actually lost income during these years.

. In 2005 the portion of Americans living in poverty was 12. 6%, an increase since 2000. It's a horrible indictment of the Bush administration to note that poverty has actually increased since the trough of the "Bush recession" which ended in 2001. At that time, in a period of high unemployment, the poverty rate was 11. 7%. Since then, as the economy has rebounded in the "Bush recovery", poverty has actually increased to over 12%. These are the official figures admitted by the government. Meanwhile the percentage of Americans in "deep poverty" -- those living on incomes below half the poverty line -- has reached the highest numbers ever seen since the government began keeping track of that number in 1975. It's likely that for families living in deep poverty, actual hunger has increased; but this is hard to keep track of because under Bush's lead the government agency in charge of these statistics has eliminated the word "hunger" from its reports, changing it to euphemisms such as "very low food security". As Bush redefines "victory" in Iraq, he redefines "hunger" for the poor.

. Many of those in poverty also lack health insurance, but they're not alone. The number of Americans not covered by insurance has increased during the Bush years and is now up to a record 46. 6 million, or 15. 9% of the population.

. Census figures confirm the deepening divide between rich and poor. And they confirm that economic growth by itself is not the answer to poverty and lack of insurance. The capitalists always tell us, "If the pie is larger everyone can have a bigger slice." But this is a lie. GDP growth has been strong the last few years and productivity growth impressive. Workers are laboring harder than ever and producing more. But the benefits of growth are not being shared. The capitalists are grabbing ever bigger slices of pie for themselves while the workers are left with empty plates.

Democrats on the attack

. While the news was full of grim statistics, Democratic Party ideologists went on the attack, trying to make sure voters pinned the blame for economic ills on incumbent Republicans. This attack was spearheaded by liberal editors and op-ed writers for the New York Times. The Times' specialist in economic matters, Paul Krugman, wrote a number of columns going after Bush and the Republicans for their economic policies.

. In his column for Sept. 1, "The Big Disconnect", Krugman pointed to the difference between overall economic growth and the growing squeeze on working people's paychecks. Interestingly enough, Krugman showed that this disconnect didn't just begin with Bush, that the stagnation of real wages goes back more than 30 years. Wages of non-supervisory workers peaked in the early 1970s, at the end of the 1960s boom. Since then workers have sometimes gained ground, sometimes lost, but they have never earned as much as they did in 1973. But Krugman cited this history only to try showing how terrible the Republicans have always been. He blamed the stagnation in real wages for the past generation on Republicans alone, forgetting that out of this 33-year period the Democrats had the presidency for one-third of the time and control of Congress for two-thirds.

. Krugman advised the Democrats to take advantage of the Republicans' economic failures by launching a renaissance of "smart, bold, populist politicians." In terms of policy, Krugman called for universal health insurance as a step that would mitigate the growing inequality.

. Krugman followed up on Sept. 8 with "Whining Over Discontent", in which he answered Republicans like the Times' David Brooks who complain about the discontent with recent economic stats. In a Sept. 7 column Brooks, like Bush, tried to blow off the grim news and bluster his way through it by asserting that things are better than ever. But Krugman argued that you can't brush aside Americans' discontent with the economy by attributing it to something else. You can't just blame it on the high price of gasoline or the war in Iraq:

"most Americans think it's a bad economy because for them, it is. The lion's share of the benefits from recent economic growth has gone to a small, wealthy minority, while most Americans were worse off in 2005 than they were in 2000. " Addressing long-term trends, Krugman said, ". . .  the United States as a whole has grown a lot richer over the past generation, but the typical American family hasn't. "

. Krugman excused the fact that inequality also increased under the Clinton administration. People didn't mind the rich getting richer then, he said, because the middle class and the poor were also making "substantial progress." Krugman is correct that at the height of the Clinton boom, in the years 1998-2000, workers did receive some wage increases greater than the inflation rate. But in the years before that, as the stock market boomed and profits soared in the mid-90s, workers' wages stagnated just as they have under Bush. And even at the height of the boom, workers did not receive anything like the percentage gains scored by the stockbrokers, CEOs, bankers and corporate executives; so they fell behind in relative terms even when they got wage raises. At the same time the average worker's job insecurity increased many-fold as the American economy became more and more centered on services and international trade. Financial security and basic insurance are more and more dependent on one's employment, but employment security is rapidly fading in the brave new world of the neo-liberals.

. Since Krugman is advocating health care reform as a major first step in spreading prosperity, it bears asking, what did the Democrats do on this issue last time they had the White House? The answer is -- nothing. After making a lot of noise about health care reform when he first took office, Clinton dropped it when he encountered opposition from the capitalist private insurers. The Democratic candidate in 2000, Al Gore, was happy to leave this issue alone. In 2004 the Democrats' John Kerry proposed a new plan for health care reform, but it was exceedingly cheap, not at all the type of universal plan advocated by Krugman himself and far away from the "populist" politics Krugman calls for. But that didn't stop Krugman from campaigning for Kerry.

Continuing the campaign

. Krugman wrote another column Sept. 15 ("Progress or Regress? The debate over the middle class") in which he summed up his assertions about recent economic history and gave his orientation for the coming midterm election:

. "Here's what the numbers say: From the end of World War II until 1973, when the first oil crisis brought an end to the postwar boom, the U. S. economy delivered a huge, broad-based rise in living standards: family income adjusted for inflation roughly doubled for the poor, the middle class, and the elite alike.
. "Since 1973, however, the picture has been mixed. Real median household income . . . rose a modest 16% between 1973 and 2005. But even this small rise didn't reflect clear gains across the board. The typical full-time male worker saw his wages, adjusted for inflation, actually fall; the typical household's real income was up only because women's wages rose . . . and because more women were working. . . .
. ". . . The United States is far richer and more productive than it was a generation ago. . . .
. "Yet in spite of all this technological progress, which has allowed the average American worker to produce much more, we're not sure whether there was any rise in the typical worker's pay. Only those at the upper end of the income distribution saw clear gains. . . .
. "What we should be debating is why technological and economic progress has done so little for most Americans, and what changes in government policies would spread the benefits of progress more widely. An effort to shore up middle-class health insurance, paid for by a rollback of recent tax cuts for the wealthiest Americans -- something like the plan proposed by John Kerry two years ago, but more ambitious -- would be a good place to start. "

. Here it is 2006 and Krugman is still campaigning for Kerry and his health care plan. Kerry's plan was in fact a very mild expansion of Medicaid and an attempt to get more Americans covered by private insurance through government subsidy. This is the sort of plan endorsed wholeheartedly today by the private insurers themselves. It maintains and in fact strengthens the private-insurance industry which is choking the life out of health care in the U.S. Today some Democratic politicians endorse much more extensive reform proposals such as John Conyers' HR 676, which calls for a single-payer system and elimination of the private insurance industry. This proposal has gotten the backing of some major Democratic Party interest groups such as UAW. So even as a reformist Krugman is dragging his heels.

. Nonetheless Krugman's column raised a good question: Why has technological progress done so little for most Americans? But he didn't answer this question. Krugman sees the problem but can't understand how it exists. This is because Krugman is blinded by liberal capitalist ideology which preaches that rising living standards inevitably accompany rising productivity. Krugman himself in his 1990s book Pop Internationalism promoted that rising productivity is the most reliable indicator of rising wages for workers. Krugman used this supposed fact to support his neo-liberal embrace of free trade, arguing that free trade promotes more rapid rises in productivity and hence (according to him) rising living standards for everyone. Krugman can't understand what's happened under Bush: we've had years of globalized free trade, with the capitalists free to move capital between countries, outsource jobs, and maximize "comparative advantage" in trade. The national and world capitalist economies have rapidly expanded, and profits are soaring like never before; but oddly enough, it has not generated improved standards of living for the masses.

. Krugman sees the "big disconnect" between the social wealth generated by capitalism, and at the same time the disgusting poverty it generates. His liberal ideology tells him this doesn't make sense, and he doesn't know what to make of it. With his faith in free markets, Krugman turns to politics for the answer, and he tries to blame the Republicans' distortions of proper liberal policy for the problem. Then he ends up with a typical liberal program, advocating a cheap health insurance program as a sop to those who have been left out of the massive expansion of wealth in the heyday of neo-liberalism.

Inequality: a capitalist tradition

. Increasing inequality in the midst of capitalist growth is nothing new. Back in the 19th century it was widely recognized. The opening sentence of the Inaugural Address of the International Working Men's Association (founded 1864) tells us that "the misery of the working masses has not diminished from 1848 to 1864, and yet this period is unrivalled for the development of its industry and the growth of its commerce." After backing up this statement with statistics from England, the Address goes on to say,

". . . the English facts reproduce themselves in all the industrious and progressive countries of the Continent. In all of them there has taken place, since 1848, an unheard-of development of industry, and an undreamed-of expansion of imports and exports. . . . Everywhere the great mass of the working classes were sinking down to a lower depth, at the same rate, at least, that those above them were rising in the social scale. In all countries of Europe it has now become a truth demonstrable to every unprejudiced mind, and only denied by those, whose interest it is to hedge other people in a fool's paradise, that no improvement of machinery, no appliance of science to production, no contrivances of communication, no new colonies, no emigration, no opening of markets, no free trade, nor all these things put together, will do away with the miseries of the industrious masses; but that, on the present false base, every fresh development of the productive powers of labor must tend to deepen social contrasts and point social antagonisms."

. Direct spokesmen for the bourgeoisie also noted the phenomenon of increasing inequality in the midst of commercial expansion. William Gladstone, a 19th-century leader of Britain's Parliament, in a speech to the House of Commons on Feb. 13, 1843, said,

"It is one of the most melancholy features in the social state of this country that while there was [in recent times] a decrease in the consuming powers of the people, and while there was an increase in the privations and distress of the laboring class and operatives, there was at the same time a constant accumulation of wealth in the upper classes, and a constant increase of capital." (Quoted by Karl Marx in Capital, Vol. I, Part VII, Chapter XXV, Sec. 5(a. ), "England from 1846-1866," p. 651 of the International Publishers edition.) Twenty years later, in 1863, Gladstone made a similar speech in which he said, "From 1842 to 1852 the taxable income of the country increased by 6 per cent . . . In the 8 years from 1853 to 1861 it had increased from the basis taken in 1853 by 20 per cent! The fact is so astonishing as to be almost incredible. . . . this intoxicating augmentation of wealth and power . . . entirely confined to classes of property. . . ." (Ibid. )

. Gladstone tried to excuse this obscene profit-taking by saying that somehow, indirectly, it would benefit the working masses. He said the accumulation of wealth by the rich

"must be of indirect benefit to the laboring population, because it cheapens commodities of general consumption. While the rich have been growing richer, the poor have been growing less poor. At any rate, whether the extremes of poverty are less, I do not presume to say." (Ibid. )

. Commenting on these quotes, Karl Marx pointed out that if the workers have only remained "less poor" as the rich piled up their wealth, then relatively they have remained just as poor. (Ibid., p. 652) That is, even if some of the basic commodity goods have become cheaper for the workers, and their material standard of living has improved a little bit in absolute (material) terms, still they have fallen behind the capitalists in relative terms. They have lost control of their lives to the extent that they became more and more dependent on the capitalists who control the means of production, the sources of credit, etc. Even if workers' lives improved a little in material terms, they became less and less able to ascend the social scale. Social mobility declined as workers became more dependent for their income on employment by the capitalists and more insecure in these jobs.

. Marx also pointed out that, in any case, Gladstone was actually wrong when he said commodities of general consumption had declined in price, and he gave evidence that the prices of many basic goods had in fact risen in price over the years 1842-61. This discussion is reminiscent of today's debate over the "basic basket" of consumer goods and the Consumer Price Index. Republicans especially -- since they have presided over the economy for the past six years -- say the rise in CPI is overstated, and that because some consumer goods (e.g. , electronic goods, some clothing and tools, etc. ) have fallen in price, the average worker's absolute standard of living -- his access to material goods -- has improved. Other economists point to the rise in health care costs, college education, the rise in price of autos, houses, and gasoline to say that the cost of living is rising fast, and workers' absolute standard of living is stagnant. But however this issue gets resolved, there can be no question that, just as in Marx's day, the workers' share of social wealth has declined, and their relative poverty has increased. As in Marx's day, workers are steadily becoming more and more dependent on capitalist credit institutions for basic survival, more and more dependent on their jobs and weekly paycheck to survive and maintain basic health care, and more and more insecure in these jobs.

. These quotes from the 19th century show that increasing inequality is a long-time inherent tendency of capitalist development. Increasing poverty in the midst of increasing economic growth is a basic tendency of capitalism that occurred then and is occurring now.

Who gets the surplus?

. In Capital and other works Marx explained the mechanism of "surplus value" -- how the workers are only paid part of the value of the labor they perform. Labor produces wealth beyond what is necessary for workers to survive and raise families at the accustomed level. The wealth produced by labor is divided into two parts: what labor receives back as wages, and the surplus value which is the source of capitalist profit. The larger the surplus value, the less the workers receive back and the lower their standard of living. But the more the workers demand improvements in their conditions of life, and receive it, the more the wealth they get back, and the less the surplus value. Thus when the amount of wealth created by labor increases, due to technological progress or more intense labor or other reasons, there is still the question of how this increase will be divided between wages and profits.

. This answers Krugman's question as to why technological progress has done so little to improve economic conditions for most Americans. Both capitalists and workers are dipping into the same well, and if one of them is using a bigger dipper, then the other necessarily gets a smaller drink. As Marx put it: "Profit rises in the same degree in which wages fall; it falls in the same degree in which wages rise." (Wage-Labour and Capital, Ch. VII, "The General Law that Determines the Rise and Fall of Wages and Profits.")

. Ordinarily the capitalists use their positions of dominance in the economy to ensure that they get the big dipper's share of wealth generated by new, more efficient methods of production. Instead of returning surpluses to workers in the shape of wage raises, they pocket the surplus as profit.

. By working more efficiently workers could theoretically produce more goods than before, goods that could be sold -- if there is a market for them -- to the masses at cheaper prices. But working more efficiently often does not mean producing more goods. This is because the capitalists often accompany new, more efficient methods of production with layoffs of workers. In fact the new "efficiencies" are often simply layoffs and nothing else. Each individual worker may be working harder than ever and producing more, yet overall production may remain at the same level. By getting fewer workers to produce the same amount of goods and by selling those goods at the old price, the capitalists can acquire cost savings and thereby realize more profit. They may sell the same amount of goods at the same price, yet realize more profit off this mass of goods simply because of the cost savings from employing fewer workers and paying less for wages and benefits. During so-called "difficult" times for an industry, the capitalists are able to pull off these cost savings by directly cutting wages, as they did to meatpacking workers in the 1980s and as they're doing now to the workers at Delphi.

. At more expansive times new efficiencies are accompanied by the actual hiring of new workers. The work force expands as more and more sectors of the population (housewives, seniors, teenagers, etc. ) are drawn into employment. But to maximize productivity and keep labor costs down, the capitalists move towards more capital-intensive production, using machines to produce more quickly and efficiently. So even though more workers are hired, the accumulation of capital and the intensification of capital in production are occurring at an even faster rate. Here again the workers fall behind in relative terms even though some of them have gotten new jobs. And though the work force expands, more and more workers are put into a category of reserve employment, employed during booms but then laid off in the ensuing bust.

. As productivity improves, more and more surplus is generated, but if the capitalists have their way this is simply pocketed as profit. Even when they are forced to grant workers a raise in pay, this is usually not equal to the rise in profits. So workers still fall behind in relative terms. And the workers who have been laid off due to productivity improvements now have no income at all (or only a temporary pittance as unemployment compensation). Among the millions of unemployed, there are some who eventually lose all their benefits without landing a new job and end up in the throes of poverty. This is the general pattern of capitalist accumulation described by Marx. (See Capital, Vol. I, Part VII, Chapter XXV, "The General Law of Capitalist Accumulation". )

. Even without a raise in wages, expansion of production coupled with improvements in productivity may cause a fall in the price of goods and can thereby increase the buying power of workers' wages. But it also intensifies the pressure to keep wages stagnant or even cut them, since under capitalism there is no reason to increase wages beyond what is necessary for workers' basic needs. If the capitalists could prove that the "basic basket" of consumer goods actually declined in price overall, no doubt they would press for negative COLA payments, for wages to be automatically cut to correspond to price declines.

. As Marx points out, workers who have been laid off as a result of the capitalists' productivity drive are not really "redundant" or irrelevant to the economy. Their presence plays a crucial role in keeping wages down by reminding those still employed that they might be next, and they can easily be replaced. So the rate of wages generally follows the path of the capitalist business cycle. During a recession, when more workers than usual are unemployed and the competition for jobs is intense, it's quite difficult for the workers to gain a raise. At the height of a business boom, when unemployment is low, the capitalists bid up the price of wages seeking to attract workers. But even then some section of the work force is unemployed and hence acting as a brake on raises. And a fair portion of this "industrial reserve army" is constantly falling into absolute poverty, permanent unemployment and destitution. This tendency to create more and more poverty is a constant reality under capitalism, because the capitalists make higher profits by keeping employment at the absolute minimum and constantly pressing to keep wages down. Marx calls this the "absolute general law" of capitalist accumulation: the system's tendency to create more and more poverty and misery in the course of its drive for greater profit. (See Capital, Vol. I, Part VII, Chapter XXV, Section 4, p. 644. )

The need for struggle

. But the capitalists don't always have things their way. This is because workers have the ability to organize, and by overcoming the competitive forces imposed on them by the capitalists the workers can force concessions out of them. This is the basis of the economic struggle in capitalist society. The spontaneous economic forces of capitalism are constantly pushing workers' wages and benefits down, and if workers did not organize to fight back against this tendency, they would soon find themselves mired in poverty.

. In his work Wages, Price and Profit Marx pointed out the importance of workers struggling for higher wages from the capitalists. As the economy expands and productivity improves, the workers generate more and more surplus value -- wealth beyond what is necessary to simply maintain their existence. Who receives that surplus wealth -- the workers or the capitalists -- is not set by any economic law. The only thing definite is that wages and profits vary in an inverse ratio: if workers receive higher wages, the capitalists will get lower profits. Because of their control of production and employment the capitalists have an advantage, and the general tendency is for them to seize as much of the surplus as they can while keeping workers in a state of basic survival.

. But the workers can fight against this tendency by getting organized and carrying on struggle -- strikes, etc. -- against the capitalists. This is the main problem that has afflicted the working class over the last generation: their mass organizations of struggle have degenerated and collapsed in the face of the capitalist onslaught. As Krugman and other economists point out, it's not that the economy has collapsed, that capitalism stopped growing, or that it stopped making advances in technology and productivity. The Scientific and Industrial Revolutions continue to leapfrog ahead just as they did in Marx's day. The fact that the benefits of economic growth are not being shared out is due to a lack of determined class-struggle orientation on the part of workers' organizations.

. It was pointed out above that recessions are the most difficult time for workers to defend their wages against cuts by the capitalists. But the American workers made dramatic gains in terms of economic struggle during the Great Depression of the 1930s. During this time the workers organized themselves into industrial unions and carried out a series of enormous struggles including sit-down strikes and general strikes. The organizations that achieved recognition were then able, over the next period of time, to enforce steadily rising wages and benefits, limitations on work hours, etc. This history shows that regardless of economic conditions, boom or bust, the crucial thing in gaining benefits for the workers is struggle. As Marx said, "The matter resolves itself into a question of the respective powers of the combatants." (Wages, Price and Profit, Chapter XIV)

. Hence economic struggle against the capitalists is a constant necessity for workers. But in carrying on this struggle the workers also raise the possibility of an entirely new social order in which the class struggle is superseded as workers take direct control of the economy themselves. In his works Marx stressed that in the movement of the present workers should also be organizing for the society of the future, when capitalist profit-making is eliminated and the working class builds socialism.

Socialism is the solution

. Bourgeois politicians promise reforms to alleviate the class differences engendered by capitalism. Today for example they're talking about raising the minimum wage and expanding health care insurance coverage. But two things have to be kept in mind when listening to their promises. First, nothing will happen without pressure from the masses. Even if they legislate some reform on health care, it's bound to be a cheap, ugly program that forces the workers to finance it unless there's mass pressure to make the rich pay. Secondly, no reform, no regulations or controls on capitalism can do away with its basic tendency to drive the masses into proletarian poverty while enriching the capitalists. The only thing that can do away with this basic tendency is to do away with capitalism itself through a revolutionary transformation of society. This will be accomplished by the working class rising up, doing away with capitalist ownership of the means of production and taking control of production and management themselves. Republicans and Democrats compete over who can make the most alluring promises, but all their promises are fundamentally empty since they never address the basic question of which class owns and controls the means of production.

. Under capitalism, private ownership of the means of production is used to defend and extend the class privileges of the bourgeoisie. But with the workers in charge under socialism, common ownership of the socialized means of production is used to abolish classes, do away with privileges and guarantee a steadily rising standard of living for the masses. This includes greater access to material goods and longer periods of leisure time. Social services will expand and environmental clean-up made a priority to ensure better living conditions for the working people. Productivity increases will be used to benefit the workers rather than amass piles of wealth for capitalists.

. Bourgeois apologists tell us socialism is impossible. But the new globally integrated economy is casting aside the misconceptions of bourgeois political economy and liberal politics. There have been times when a growing economy and growing productivity coincided with rising wages. This led liberal economists like Krugman to say they are naturally connected. But recent exposure of the "big disconnect" shows this ain't necessarily so. The only thing constant about capitalism is the insatiable drive for profit at the expense of the workers. And the only constant for workers is the need to struggle against the capitalists, to keep their heads above water until they can manage to swim ashore to socialism.

. The Industrial Revolution has been going on for well over 200 years. The capitalists have built a globally integrated economy with auto, steel, electronics and computer mass production in many countries. But they are not going to share out the wealth produced by this globalized economy without struggle. And the only way for workers to guarantee steadily rising living standards is for them to take direct control of the economy, do away with capitalist profit-making and put the economy on a new basis of production for people's needs. This is not simply reformed, regulated or controlled capitalism. Nor is it bureaucratic state-capitalism where a new class of state-capitalists lords it over the workers, and the basic economic laws of capitalism remain intact. Socialism means doing away with institutional inequality and liberating workers from class oppression for good. <>

Back to main page, write us!

February 25, 2007.
e-mail: mail@communistvoice.org