Here the observant reader will object that there is more to production than wage labor and that the rate as represented by the graphs must be inflated. In particular, what of the value added by salaried employees?
The following two graphs are based on the relation of annual payroll to value added:
Rate of Surplus Value 1949 through 2006 - wages plus salaries and Employees' Share.
Just as the earlier graphs overestimate the rate of surplus value, these two underestimate it. They include problematic amounts such as, for example, salaries paid to corporate officers, no matter how inflated or divorced from actual production they might be. Reality must lie somewhere between the two estimates.
There are additional weaknesses with this analysis, perhaps most notable its failure to account for legacy expenses and taxes. As for taxes, and keeping in mind the recent use of tax dollars to bail out and loan to businesses, we must ask ourselves not only who pays them, but also, to whom and in what percentages do their benefits actually flow — owners or workers? And given owners' ability and penchant to renege on legacy commitments when times get tough, as evidenced for example, by Kodak's history, it is not clear how seriously these expenses should be treated. Further complicating the picture is the question of how the money that is supposed to cover them is raised.
In any case, the trend is clear. Overall, owners have taken a steadily increasing share of the value of production; overall, workers have been unable even to hold their own, let alone increase their share over the years.
So does it make sense to blame unions for the sorry state of our now near bankrupt manufacturing industries?
Article comments
— go to most recent comments1 - Dave Nalle
I hate to get all 1820s on you, but are you familiar with David Ricardo and the Iron Law of Wages? Some of the earliest analysis of the dynamic you're talking about remains the best, and Ricardo was the best, even if modern liberalism finds his conclusions reprehensible.
From a Ricardian point of view, the inflated wages your charts suggested existed in the post-war period were an undesirable anomaly and a mark of inefficiency and waste in the system. Over time the waste has worked out of the system to move towards a more natural, wage.
The mistake in thinking that the phenomenon you describe is a negative is the assumption that wages should be based on production or on surplus value, or that they are in any way derived from any consideration other than the forces of the labor market. Wages are set by what the labor market demands. If the wages you are paying are too low, you won't be able to hire workers. Since you CAN hire workers, then you're paying the proper wage.
What you're not saying, but are essentially asking for here is an entirely different business model. To get away from market-set wages you need businesses to be organized on a cooperative basis where the workers are all also owners in the company. It's perfectly reasonable business model and it works well, but it's not popular because it inhibits growth and expansion.
We have a great example here in Austin. About 30 years ago there were two grocery stores here which specialized in organic produce - pioneers in the field. One of them was organized as a cooperative and the other was organized as a corporation owned by a small group of people. In the first all of the employees and even many of the shoppers were members of the coop. In the other workers were paid a wage slightly above market for their jobs and the profits were managed by the corporate board.
Fast forward 30 years. Whole Foods Market is the most successful nationwide organic food retailer and an enormous success with hundreds of stores nationwide. Wheatsville Coop is still popular, but it operates out of the same building in the same location at about the same volume of sales as 30 years ago. The difference is that Whole Foods was able to take their 'surplus' capital and invest it in expanding the business.
But here's the irony. If a Whole Foods worker took the slight amount he was paid over market and invested it in Whole Foods stock when the company went public about ten years ago - using their generous employee investment plan - he would now be much more wealthy than a Wheatsville Coop member who received dividends at roughly the same rate from the coop for those thirty years. This despite recent stock problems.
The point being that both the corporation and the coop are self-sustaining business models, but the corporate model supports growth and expansion much, much better.
Dave
2 - Cindy D
Dave,
I was going to say some things about this article below. About Mackey (Whole Foods) being a much greater guy that the typical corporate model based on Friedman.
Rethinking the Social Responsibility of Business
A Reason debate featuring Milton Friedman, Whole Foods' John Mackey, and Cypress Semiconductor's T.J. Rodgers.
But, you know what Dave? It turns out he's almost as much of a shitheel as Friedman, when I do research beyond his article.
If the wages you are paying are too low [compared to what they are paying these days in, say, Hong Kong], you won't be able to hire workers.
Unless you create a global market [read the aim of neoliberalism] where you can use slaves who will gladly destroy their own health for $8/day.
3 - Mark Eden
Dave, thanks for your response. I don't want to get all 1860s and doctrinaire back on you and reenact an argument that was concluded 150 years ago. Suffice to say that what you propose (essentially repeating Lassalle's misunderstanding of Ricardo's 'natural law') is answered by the fact that wages are determined politically. If you want to focus on what Ricardo got right, take a look at his theory on the necessity of economic stagnation.
To your discussion of Whole Foods - I'm all for cooperative 'ownership'. When it penetrates to the farm workers who actually produce the food sold there I will start to be impressed. (I'm looking for a data source with which to analysis the rate of surplus value in US agriculture as I did for manufacturing in the article.)
Mark
4 - Cindy D
Dear Mark,
I will try reading your article again tomorrow. I hope I will understand it better. It sounds like a thing I want and need to know but just don't understand.
Oh, I understand the point. I just wish I understood everything in between. This is like when you made me read Marx.
Much like I don't understand Marx when I read him directly. But, do understand that what he is saying is vitally important to my understanding (when I read him indirectly).
It's very frustrating to me. I have a fairly high IQ. I graduated Magna Cum Laude from a university that students from Princeton would escape to, thinking it would be easier (and yet they found it more rigorous, to their chagrin). Yet, I have trouble understanding. I need remedial help! I deserve a special class!
5 - Cindy D
Mark,
Perhaps if you could give me something to read. Even if it's Marx, I promise I'll read it.
6 - Mark Eden
Cindy - keep your eye on the prize which is to figure out how to protect real people from the misery that is built into our present system. The first step is to 'grok' why economic crises occur.
Don't sweat the small stuff as they say. (I'll try to come up with helpful stuff.)
Mark
7 - Dave Nalle
I was going to say some things about this article below. About Mackey (Whole Foods) being a much greater guy that the typical corporate model based on Friedman.
But, you know what Dave? It turns out he's almost as much of a shitheel as Friedman, when I do research beyond his article.
I wouldn't call Friedman a shitheel. He was a theoretical economist, so he dealt in ideas, not practicalities. He never abused a worker or made a sleazy deal in his life.
And yes, as we all know here in Austin, Mackey aced his original partners out of their share of the company and engaged in a variety of fairly machiavellian business moves (I know one of the small competitors he forced out of business). But he does pay his workers better than average for the industry and offers better benefits than similar businesses. He's a good businessman and as things go he's relatively decent to his workers.
Dave
8 - Dave Nalle
Dave, thanks for your response. I don't want to get all 1860s and doctrinaire back on you and reenact an argument that was concluded 150 years ago.
I'm not sure it's entirely concluded. While Ricardo's conclusions were certainly questionable, the forces which he identified he did identify quite correctly, and that earns him a permanent spot in our understanding of how markets work.
Suffice to say that what you propose (essentially repeating Lassalle's misunderstanding of Ricardo's 'natural law') is answered by the fact that wages are determined politically.
I'd like to see an explanation of this and some examples, becuase as far as I can tell it's absolutely not true. Wages are set by the market as a pure result of supply and demand. Look at the nursing industry if you don't believe me. Because of the shortage of supply and the growing demand you see wages increasing dramatically, demonstrating how the market works.
To your discussion of Whole Foods - I'm all for cooperative 'ownership'. When it penetrates to the farm workers who actually produce the food sold there I will start to be impressed.
Wheatsville Coop which I mentioned earlier buys from local sources and Whole Foods also does to some extent. We've also seen a real renaissance for farmers markets nationwide. Some of those local farmers around here run their farms as coops, and lots of small family farms belong to organic farming cooperatives so that they can pool their produce and sell it more effectively. I think agriculture is absolutely one of the most viable areas for the cooperative as a business model. Look how well it worked for cotton for so many years. If the Grange hadn't been so badly mismanaged back in the early 1900s I think it would have provided a real challenge to the massive agrobusinesses. The cooperative business model works particularly well when it's a cooperative of producers rather than of laborers or consumers. Hell, look at the hundreds of years of success the Amish have had at cooperatively marketing their agricultural surplus outside of their communities.
Dave
9 - Mark Eden
Dave - no one (that I know of) denies the basic operations of supply and demand. But it is the political landscape which forms the 'box' within which it functions. I realize that this will not satisfy you and will try to come up with a less 'mysterious' explanation. Alternatively, you can immerse yourself in the zillions of pages Marx devoted to his analysis of wages.
10 - Dave Nalle
An example or two would be nice, but if I understand what you're getting at, I guess I don't necessarily disagree. I wouldn't call it the 'political landscape', but I acknowledge that the economic environment has set certain parameters within which supply and demand operates. I'd also go farther and say that some of our economic problems are the result of changes in those parameters which are disruptive, either because the new parameters are flawed or because of the instability caused by transition from one system to another, and by the failure of some players in our economy to adjust to changing conditions.
Dave
11 - Cindy D
Dave,
I wouldn't call Friedman a shitheel.
It was that article that I linked for you. While I was reading it, I was getting mad at him. I've been reading a lot of economic history lately. Friedman and neoliberal ideology figure prominently in that reading. It's frustrating. It gets to me sometimes.
12 - Mark Eden
I wouldn't call Friedman a shitheel. He was a theoretical economist, so he dealt in ideas, not practicalities. He never abused a worker or made a sleazy deal in his life.
Reminiscent of this catchy number.
13 - Dave Nalle
A classic song, Bliffle. But remember that it was Werner von Braun and his work on the V2 which became the basis for the US space program and all the great technological advancements which it produced. And just as Friedman knew how economies worked, von Braun certainly knew how to make the rockets go up.
Dave
14 - Mark Eden
Bliffle?
Ends justifying means...must break a few eggs and all that right Dave? War. Ya gotta love it! Really gets those creative juices flowing.
15 - bliffle
Mark says:
"Dave - no one (that I know of) denies the basic operations of supply and demand."
What ARE the basic operations of supply and demand?
I think that most people who talk about supply and demand know little about it, but they often have complex personal theories.
16 - Mark Eden
Bliffle - My take is that 'supply' and 'demand' are best viewed as abstract (math) functions relating quantity to price.
What's your view?
Mark
17 - Dave Nalle
People want things. Other people make sure they get them. In return they get paid so that they can get things they want. Supply and demand.
Sorry Mark, I sometimes get you and Bliffle confused. Once you put on the Che T-Shirt you all look alike to me.
Dave
18 - Mark Eden
Che who?
19 - Dave Nalle
Got to give the UAW credit. In today's testimony their top guy is agreeing to making wages and benefits comparable to those at Toyota, Honda, etc.
Dave
20 - Mark Eden
Thus it looks safe to forecast that the rate of surplus value will continue its upward movement ...right into the abyss.
21 - Dan(Miller)
I must admit to some confusion. According to the article, all proceeds from the sale of manufactured goods over and above labor costs constitute "surplus value." Although "the owner must pay his business expenses (less labor costs) and gain his profit" from what is left over after labor costs, "surplus value" should apparently be the benchmark in determining what workers should receive. Hence, if manufacture of a widget which sells for $1.00 involves labor costs of fifteen cents and other costs (e.g., materials, tools, distribution, etc.) of seventy-five cents, "surplus value" equals eighty-five cents and should be the standard for determining the distribution of money between those who toil on the assembly lines and those who don't.
It may be accurate to claim that In addition to the points attempted to be made above, this analysis appears to disregard the substantial increases in non-labor costs during the same period.Presumably, for a large business producing such things as automobiles, the item "business expenses" includes the following costs, among others. Of those listed below, only salaries paid to corporate officers, no matter how inflated or divorced from actual production they might be are mentioned in the article.
materials
equipment
buildings
land
salaries and bonuses for non-production workers
debt service
research and development
taxes
legal and accounting fees
advertising
other sales costs
Only after labor costs, as well as these and other pesky expenses, have been taken care of do the owners of the business -- the stockholders-- get their profits, if any. Use of the phrase "surplus value" to include all business expenses exclusive of labor costs suggests that wicked capitalists are screwing their employees, while unconscionably benefiting from the "surplus value" which they hoard. That may happen, but it seems unlikely that it is a universal or even widespread phenomenon.
"Labor productivity" is another loaded phrase. Productivity increases seem very unlikely to have resulted solely from workers becoming smarter or more industrious. Is it seriously contended that without dramatic improvements in manufacturing processes (another "business expense") labor would produce more and better widgets now than were produced many years ago? Would U.S. auto makers have survived as long as they have without such improvements? Automobiles lovingly crafted by highly skilled and conscientious craftsmen, one at a time with only hand tools which they themselves own might be very nice, but few could afford them; having non-standard replacement parts hand crafted by other skilled workers would also be tedious.
According to the article,
Dan(Miller)
22 - Mark Eden
Dan, surplus value and profit are distinct. I do not address profit in any depth in the article as it is of little relevance in the process of an increasing rate of surplus value. For your widget (100-15)/15=567% = surplus value from which the owner must pay his expenses less labor costs and get his profit.
Concerning 'business expenses' and the degree to which they are hidden in my figures, I suggest that you read the definitions of the categories that I used to get the graphs. Most of your concerns are addressed there.
Mark
ps - 'evil' has nothing to do with it
23 - Mark Eden
(actually that % is the rate...actual surplus value is in fact the 85 cents - sorry Dan)
24 - Mark Eden
In particular, Dan, please note that I used 'value added' as the basis of the analysis, not 'total value of shipments'.
25 - Dan(Miller)
Mark, I did read the definitions. However, excluding all business expenses beyond the direct costs of labor from "surplus value," and then using "surplus value" as the criterion for determining wages, seems strange.
As to the surplus value rate of 576% in your comments #22 and 23 based on my widget example, I don't understand where you would like a substantial wage increase is to come from. If the entire profit of ten cents were forfeited and wages were thereby to increase to twenty-five cents, by your calculations the surplus value ((100-25)/25)) would be 300% -- a facially absurd figure for evaluating appropriate wages and one which would provide no incentive for investment. With no incentive for investment, it seems unlikely that workers would be advantaged in the long run.
Dan(Miller)