Wednesday, December 1, 2010

Marx on a global wage


What is the longterm tendency in the wage for relatively unskilled labor?  In the United States we've been thinking about this problem in the past three decades in the context of "outsourcing" and the flight of manufacturing jobs to low-wage countries. Moderate- and high-wage industrial jobs have left the country in large numbers.  In the 1970s and 1980s apparel manufacture largely left the US for Latin America and Asia, and in the 1990s and 2000s heavy manufacturing jobs (in the auto industry in particular) were widely perceived to have fled to Asia.

What are the effects of these global shifts in manufacturing for the wage in all countries?  It turns out that Karl Marx had some remarkably prescient ideas about this question in the 1860s that still seem important today.  Here are some markedly current observations from Marx's Capital (link) on the wage in a competitive international context:
A writer of the 18th century, often quoted already, the author of the "Essay on Trade and Commerce," only betrays the innermost secret soul of English capitalism, when he declares the historic mission of England to be the forcing down of English wages to the level of the French and the Dutch. [37] With other things he says naively: "But if our poor" (technical term for labourers) "will live luxuriously ... then labour must, of course, be dear.... When it is considered what luxuries the manufacturing populace consume, such as brandy, gin, tea, sugar, foreign fruit, strong beer, printed linens, snuff, tobacco, etc." [38] He quotes the work of a Northamptonshire manufacturer, who, with eyes squinting heavenward moans: "Labour is one-third cheaper in France than in England; for their poor work hard, and fare hard, as to their food and clothing. Their chief diet is bread, fruit, herbs, roots, and dried fish; for they very seldom eat flesh; and when wheat is dear, they eat very little bread." [39] "To which may be added," our essayist goes on, "that their drink is either water or other small liquors, so that they spend very little money.... These things are very difficult to be brought about; but they are not impracticable, since they have been effected both in France and in Holland." [40] (Capital I, chap. 24)
And the footnote amplifies:
[40] Today, thanks to the competition on the world-market, established since then, we have advanced much further. "If China," says Mr. Stapleton, M.P., to his constituents, "should become a great manufacturing country, I do not see how the manufacturing population of Europe could sustain the contest without descending to the level of their competitors." (Times, Sept. 3, 1873, p. 8.) The wished-for goal of English capital is no longer Continental wages but Chinese.
In other words, Marx's view in 1867 was that there is an inevitable competitive pressure on British firms (high wages) to seek out manufacturing locations in other countries where labor costs are lower; and, of course, this movement brings competitive downward pressures on the domestic manufacturing wage.  So the British manufacturing wage falls as low-wage European competitors (eventually Chinese competitors) are able to produce commodities at lower unit cost.  This has a long-term global result: the unskilled manufacturing labor market becomes global, and the wage approaches a global equilibrium that is significantly lower than the present.

One thing is striking about this observation in 1867 is the reference to China.  Mr. Stapleton's observations in 1873 were highly speculative; China was a century from becoming a great manufacturing country.  But Marx's eye was focused on the long-term patterns; and he (and Mr. Stapleton) correctly noted the inherent logic of global competition for low-wage labor.  The long-term result, apparently unavoidably, is that production processes that involve low-skill labor will be involved in a rapid race to the bottom, leading to an equilibrium wage across nations that is barely sufficient for subsistence.

Another major force operating on the level of the wage for unskilled labor that Marx emphasizes is the rapid introduction of technology and innovations enhancing labor productivity -- leading to a reduction in the demand for labor and putting more downward pressure on the wage.  Writing after the American Civil War about English cotton manufacture, he writes:
The instrument of labour strikes down the labourer. This direct antagonism between the two comes out most strongly, whenever newly introduced machinery competes with handicrafts or manufactures, handed down from former times. But even in Modern Industry the continual improvement of machinery, and the development of the automatic system, has an analogous effect. "The object of improved machinery is to diminish manual labour, to provide for the performance of a process or the completion of a link in a manufacture by the aid of an iron instead of the human apparatus." [119] "The adaptation of power to machinery heretofore moved by hand, is almost of daily occurrence ... the minor improvements in machinery having for their object economy of power, the production of better work, the turning off more work in the same time, or in supplying the place of a child, a female, or a man, are constant, and although sometimes apparently of no great moment, have somewhat important results." [120] "Whenever a process requires peculiar dexterity and steadiness of hand, it is withdrawn, as soon as possible, from the cunning workman, who is prone to irregularities of many kinds, and it is t)laced in charge of a peculiar mechanism, so self-regulating that a child can superintend it." [121] "On the automatic plan skilled labour gets progressively superseded." [122] "The effect of improvements in machinery, not merely in superseding the necessity for the employment of the same quantity of adult labour as before, in order to produce a given result, but in substituting one description of human labour for another, the less skilled for the more skilled, juvenile for adult, female for male, causes a fresh disturbance in the rate of wages." [123] "The effect of substituting the self-acting mule for the common mule, is to discharge the greater part of the men spinners, and to retain adolescents and children." [124] The extraordinary power of expansion of the factory system owing to accumulated practical experience, to the mechanical means at hand, and to constant technical progress, was proved to us by the giant strides of that system under the pressure of a shortened working-day. But who, in 1860, the Zenith year of the English cotton industry, would have dreamt of the galloping improvements in machinery, and the corresponding displacement of working people, called into being during the following 3 years, under the stimulus of the American Civil War? A couple of examples from the Reports of the Inspectors of Factories will suffice on this point. A Manchester manufacturer states: "We formerly had 75 carding engines, now we have 12, doing the same quantity of work.... We are doing with fewer hands by 14, at a saving in wages of £10 a-week. Our estimated saving in waste is about 10% in the quantity of cotton consumed." "In another fine-spinning mill in Manchester, I was informed that through increased speed and the adoption of some self-acting processes, a reduction had been made, in number, of a fourth in one department, and of above half in another, and that the introduction of the combing machine in place of the second carding, had considerably reduced, the number of hands formerly employed in the carding-room." Another spinning-mill is estimated to effect a saving of labour of 10%. The Messrs. Gilmour, spinners at Manchester, state: "In our blowing-room department we consider our expense with new machinery is fully one-third less in wages and hands ... in the jack-frame and drawing-frame room, about one-third less in expense, and likewise one-third less in hands; in the spinningroom about one-third less in expenses. But this is not all; when our yarn goes to the manufacturers, it is so much better by the application of our new machinery, that they will produce a greater quantity of cloth, and cheaper than from the yarn produced by old machinery." [125] Mr. Redgrave further remarks in the same Report: "The reduction of hands against increased production is, in fact, constantly taking place, in woollen mills the reduction commenced some time since, and is continuing; a few days since, the master of a school in the neighbourhood of Rochdale said to me, that the great falling off in the girls' school is not only caused by the distress, but by the changes of machinery in the woollen mills, in consequence of which a reduction of 70 short-timers had taken place." [126]
(Capital I, Chapter 15)
The note is important as well:
[126] l. c., p. 109. The rapid improvement of machinery, during the crisis, allowed the English manufacturers, immediately after the termination of the American Civil War, and almost in no time, to glut the markets of the world again. Cloth,' during the last six months of 1866, was almost unsaleable. Thereupon began the consignment of goods to India and China, thus naturally making the glut more intense. At the beginning of 1867 the manufacturers resorted to their usual way out of the difficulty, viz., reducing wages 5 per cent. The workpeople resisted, and said that the only remedy was to work short time, 4 days a week; and their theory was the correct one. After holding out for some time, the self-elected captains of industry had to make up their minds to short time, with reduced wages in some places, and in others without. 
So is there any way out for the worker?  Is there any scenario where ordinary working people can earn a moderate to high wage and corresponding standard of living?  There is, through education and skill.  The only way of maintaining a high wage for workers is on the basis of a given workforce possessing the ability to accomplish production tasks on the basis of non-generalized knowledge and skill.  When labor is a commodity that is interchangeable in Karnataka, Guangdong, and Detroit, the wage will approach something like a low-level equilibrium.  But when workers are able to add exceptional value to the process through their skills, talents, and knowledge, they will share in that productivity in the form of higher wages and a higher standard of living.

This observation converges with several themes already discussed in earlier postings: the attractiveness of the "high-skill" alternative to mass manufacturing that is highlighted by Chuck Sabel (link), and the current urgency that we should all feel about making sure that all young people have the opportunity to complete a tertiary degree (link).



9 comments:

Charley said...

This isn't like the law of gravity. The tendency expresses itself, only if no contravening effort is made, such as, for instance, reducing hours of work in the more advance nations.

The descent of American wages to that of china, therefore, is being deliberately facilitated by Washington economy policy circles.

minka said...

"The only way of maintaining a high wage for workers is on the basis of a given workforce possessing the ability to accomplish production tasks on the basis of non-generalized knowledge and skill."

The 'only' way? You are asserting the answer, not justifying it.

Some people assert that rising inequality in the USA reflects skill premiums. But inequality has soared at the very top, a tiny fraction, and the skill premium between the top quarter per cent and half per cent is meaningless.

No, these premiums come from rents extracted by elites. These are political as well as economic processes. The economic system delivers its fruits (riches) to those with the power to manipulate streams of power and profit.

I would not assume that the global economy you prefer has the force of a natural order. It does not. It has the force of political elites. If its fruits are not fairly distributed, it may well disintegrate, without regards for 'skill premiums'.

Sheldon said...

And what about the new trend of highly skilled and educated pools of Indian workers who sell their labor at a lower cost? Seems like there needs to more of a solution than just simply trying to make up the slack with more highly educated workers. Seems like that Marx guy was arguing for something much more than that.

Peter T said...

Two points about higher skills:

Many skills are skills of doing, not formal learning (no-one becomes a skilled carpenter, machinist or production-line manager by going to university). If you transfer the manufacture, you transfer the skills - and the further development of the skills (as with cars and Japan).

Also - what stops other workforces climbing the skills ladder? This happened in Germany, Japan and Singapore, and is happening in China and India.

To keep the whole thing going you need to assume there is no upper bound to production or wants. But there is - one set by the ability of the earth to support human production. So you have to stop sometime.

The issues then become when you stop (with what margin for safety), and how you distribute. Current trends suggest we are some way from seriously addressing either.

Anonymous said...

In fact, we may be vastly underestimating the potential of technology to replace both low and high skill jobs.

For one perspective on what the future will look like, check out this book (available at Amazon or as a free pdf):

The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future

http://www.thelightsinthetunnel.com

nick said...

Marx had the picture upside down. The general tendency is for wages in China to RISE to the levels of more developed countries: http://timworstall.com/2010/08/19/ive-said-this-before/

Some particular trades in the West may suffer, so there is a role for support and re-training, but as a whole workers benefit.

fred said...

If the size of the pie is fixed, then yes, dividing the pie among more workers means the slices get smaller. But the size of the pie is NOT fixed.

What matters is not so much whether there is a global wage, but what that wage can buy. Some commodities (oil especially) may indeed become more more expensive for the average American due to competition from workers from the rest of the world, but this may be offset by rapid reduction in price for finished goods that are currently expensive. For example, we may see robots building lightweight cars and standardized housing, so that cars and housing become very cheap (for all workers, American and Chinese alike), while the fuel to run the cars or heat the houses becomes much more expensive.

fred said...

If the size of the pie is fixed, then yes, dividing the pie among more workers means the slices get smaller. But the size of the pie is NOT fixed.

What matters is not so much whether there is a global wage, but what that wage can buy. Some commodities (oil especially) may indeed become more more expensive for the average American due to competition from workers from the rest of the world, but this may be offset by rapid reduction in price for finished goods that are currently expensive. For example, we may see robots building lightweight cars and standardized housing, so that cars and housing become very cheap (for all workers, American and Chinese alike), while the fuel to run the cars or heat the houses becomes much more expensive.

Lazaro Cruz said...

One solution I have always wondered about is the passage of a global minimum wage. I realize it sounds far fetched and might be nearly impossible to enforce but I think it would be an interesting topic to explore.

Can anyone here recommended any journal articles or books that discuss the concept?