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Monthly articles (English and French) on the theme "Querying economic orthodoxy"
No. 4 - April 2006
Free-Marketeers v. Workers
ANGUS SIBLEY
Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumers.
Adam Smith, The Wealth of Nations (1776), bk IV, chap viiiIt seems quite far from Smith's mind that the individual, 'in his normal state of health, strength, activity, skill, facility', needs a normal portion of work.
Karl Marx, Grundrisse, notebook VI (1858), tr. Martin Nicolaus (Penguin, London 1973) p 611In this article the word "worker" does not have the traditional left-wing connotation of the industrial worker belonging to the "working class". It means anyone who works for his or her living.
People are attracted by a philosophy that purports to make everything in the shops as cheap as possible. Are they fully aware that such a policy has its price - that it tends to make every job as hard to find, as hard to keep, and as poorly paid as possible?
An anti-worker bias
If you are trying to earn your living, the libertarian (free-market) economists are after your blood. Their policies make life harder for you: jobs are scarcer and more precarious, earnings are often lower, hours of work are longer, competition is tougher. Meanwhile, the same policies pamper consumers with lower prices; they allow clever entrepreneurs and top executives to make huge fortunes. Economics, as it is generally taught and practised today, is clearly biased against the great majority of workers.
This problem is far from new. It can be traced back to the mid-eighteenth century, the era of Adam Smith and other "classical" economists. To be fair, Smith was sympathetic towards "common labourers"; but he commented harshly (1) on greedy tradesmen and manufacturers and their lazy apprentices; he ridiculed the regulations of his day that aimed to protect their livelihood; and he argued, as noted above, that consumer interests ought to take absolute precedence over the interests of producers (workers).
David Ricardo, a follower of Smith who had much influence on policymakers in the early nineteenth century, had only bad news for the labourers. He propounded (2) the notorious "iron law of wages": the natural price of labour is that price which is necessary to enable the labourers, one with another, to subsist and to perpetuate their race, without either increase or diminution.
He was not the first to express this view. Already Smith's friend Turgot, minister of finance under Louis XVI, had written (3) that in every kind of labour it must, and does indeed, happen that the worker's wage is limited to that which is necessary to provide for his subsistence.
This clearly implies that minimal (subsistence) wages reflect a law of nature. One does not dispute the laws of nature; try making water run uphill or getting electricity to pass through cotton thread. So it follows from the theory of Turgot and Ricardo that an employer need feel no compunction about paying his workers rock-bottom wages. It follows likewise that it is useless for workers to try to improve their position; especially since a law formulated by Turgot (4) aimed to prevent any kind of association between maîtres (master craftsmen) or between journeymen, apprentices or labourers, thus outlawing guilds and trade unions. England had similar legislation, the Combination Acts of 1799 and 1800, inspired by Ricardo's arguments.
Today, most economists exhibit this same anti-worker bias. Why do they hold this one-sided view? And why do voters, who are mostly workers for much of their lives, support the economists' policies? I suggest three reasons.
Consumerism
For much of the twentieth century, the theories of Smith, Ricardo and Turgot were out of favour. Government policies often favoured workers' interests; powerful trade and professional associations and trade unions flourished. But more recently, partly in response to consumer pressures, the neo-classical economists have revived the classical tradition of economic thought: free-market, pro-consumer, anti-worker. Among the most dogmatic of these was Friedrich von Hayek (1899 - 1992), a Viennese academic who devoted his life to attacking trade unions, state welfare and everything related thereto. A brief quotation (5) gives us the pungent flavour of his philosophy: A plant or industry cannot be conducted in the interest of some permanent distinct body of workers if it is at the same time to serve the interest of the consumers.
This bias against workers reflects a strong bias in favour of consumers. Economists argue that we consumers will get a better deal if we workers are worked harder, paid less, and fired more often. It is somewhat puzzling that we, being generally both workers and consumers, should be willing to do this deal. The bonanza of lower prices loses its glitter if we are badly paid, overworked, unemployed, or afraid of becoming unemployed.
We should remember that the classical economists of the eighteenth century lived in an age when business was generally far less competitive than it is today. Most people lived in villages and small towns where they had access only to a very few tradesmen: the local grocer, butcher, tailor etc. They could not easily travel to the next town to compare prices with another grocer or butcher. So competition was very limited. Even in the bigger towns, where there might be within reach a variety of tradesmen of the same trade, it was easy for the local grocers or butchers to meet and agree to coordinate their prices. Indeed, the trade guilds that flourished in most towns saw it as part of their business to regulate prices.
One can see why those early economists desired more competition. This, they felt, would cut prices, improving the consumers' standards of living by enabling them to buy more. Moreover, the guilds - like British trade unions in the 1970s - had become too powerful and too restrictive. But conditions today are very different. The old obstacles to competition - slow and costly transport and communications, life in small scattered communities - have gone. The barriers to competition are lower than ever before. Yet economists and politicians today are more obsessed than ever before with the "need" for keener competition.
They want workers to compete fiercely against each other to provide the best possible value for consumers. Therefore they detest trade unions, trade or professional associations and cartels, just as Smith lambasted guilds and trade regulations. Any kind of collaboration between workers to protect their interests is seen as a conspiracy against the public.
Consumerism is supposed to mean a square deal for the consumer. Too often it is simply a euphemism for greedy materialism. People are attracted by a philosophy that purports to make everything in the shops as cheap as possible. Are they fully aware that such a policy has its price - that it tends to make every job as hard to find, as hard to keep, and as poorly paid as possible?
Individualism
The classical economists had another reason for their whinge against worker solidarity. These men were part of the intellectual movement known as the Enlightenment, which stood for the new rationalism of their age against medieval feudalism and the dominant Church with its doctrine of the non-competitive just price, propounded by St Thomas Aquinas in the thirteenth century. Guilds, and traditional state regulation of trade and commerce, were part of that ancient social fabric which the Enlightenment sought to replace.
More recently, the argument has taken a rather different turn. For economists such as Hayek, solidarity among workers is objectionable because it restricts the individual's freedom of contract. It is argued that each worker should be free to strike his own bargain with his employer or customer; he should not be constrained by trade union agreements, fixed scales of professional fees or regulated prices. Without such constraints, workers are able to gain rewards based on individual "merit", not on collective solidarity.
Top dollar goes to those with the greatest merit, which in theory means the most capable and diligent. But in practice it too often means the most plausible, aggressive and self-assertive. Here is the recipe for the exaggerated rewards achieved by some individuals in business today; they are said (largely by themselves) to have outstanding merit, and therefore to be worth millions of dollars a year. The other side of the coin is that those who lack outstanding merit - which may mean in practice simply that they are less domineering, thrusting, and self-aggrandising - achieve only modest incomes and have little security of employment.
The doctrine of individualist meritocracy leads to growing inequality. According to the economists, this is the price we have to pay for what they call the freedom of the individual. But their freedom is a lonely one that entails abandoning solidarities with one's neighbours, colleagues or community. As Hayek (6) puts it, we gain from not treating one another as neighbours.
Anti-socialism
A third reason for anti-worker sentiment is that any serious concern with workers' interests is associated in the minds of economists with socialism, that dirtiest of words in neo-conservative America. In particular, the arch-socialist (Communist) economies that have clearly failed were systems that put producer interests (7) well ahead of consumer interests, flying in the face of Adam Smith's rule quoted at the head of this article. Their experience has reinforced in the minds of economists the supposed infallibility of Smith's formula.
The great divide
Here we encounter one of the great divides in Western philosophy, the gulf between the Marxist and Smithian attitudes to work. For Marx, work (and not just the money it earns) is in itself necessary for the well-being of the individual; it should be enjoyable and satisfying (8). In his ideal socialist community (9), labour becomes attractive work, the individual's self-realization, which in no way means that it becomes mere fun, mere amusement, as Fourier, with grisette-like naïvety, conceives it. Work is thus, in part, an end in itself. It is not done only for money, or even only to produce goods and services. It is done also to satisfy the worker's need to produce, as well as the consumer's need to consume.
By contrast, for Smith and other classical economists, work is in no way an end in itself. It is simply what has to be done to satisfy the needs, desires and whims of consumers. There can therefore be no objection to its immediate extinction if it does not satisfy whatever happens to be the desire of the consumers at any given moment. There lies the basis of the modern notion that there cannot and should not be any stable long-term employment.
Despite the glaring errors in Marx's doctrine, his insight on the nature of work has given him wide-ranging appeal. If neo-conservatives continue to press too hard their negative view of labour, sooner or later they may face a renewed Marx-inspired reaction, for which they will have only themselves to blame.
Economies that tried to follow Marx generally avoided unemployment, an achievement not to be despised. But they failed in the end, partly because they ignored the needs of consumers.
By contrast, today's economies which aim to follow Adam Smith's model generally succeed well in satisfying consumer demand. But they provide badly for our needs as workers. Either these economies suffer grossly excessive unemployment, as in many European countries; or they avoid this fate by providing many seriously underpaid, insecure employments, as in America. In both cases, they pander to the consumer by squeezing the worker.
The need for balance
We need, surely, to find a practical middle way between the extremes of Communism, which neglected the consumers, and of economic libertarianism, which neglects the workers. In the thirty year after World War II, we seemed to be within sight of such an equilibrium. But the mixed economy had its problems, like any other. Sadly, when these became troublesome, the free-marketeers saw their opportunity to get rid of a system they had never liked. They decided that this machine could not be repaired; it had to be discarded and replaced by one built to their "new" (but in fact eighteenth-century) design.
If you are in the business of selling new machines, you tell everyone that their old ones cannot be repaired. That is what the economists have been doing for the past thirty years. Given that their "new" machine shows very serious design faults, it is time that we stopped listening to their patter.
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References
1 Adam Smith, The Wealth of Nations (1776), book 1, chap. 10
2 David Ricardo, Principles of Political Economy and Taxation (1817) chap. 5
3 Anne-Robert-JacquesTurgot, Réflexions sur la Formation et la Distribution des Richesses (1769) para. 6
4 This law was enacted on 12 March 1776. But, partly on account of it, Turgot attracted the opposition of many people from Marie-Antoinette downwards. He was dismissed on 13 May of the same year; his successor, Bernard de Clugny de Nuits, undid many of his reforms.
5 Friedrich von Hayek, The Constitution of Liberty (Routledge & Kegan Paul, London 1960) p 228
6 Hayek, The Fatal Conceit (Routledge, London 1988) chap 1
7 According to Ernest Mandel (1923 - 1995), a leading Marxist economist, production in the ideal Marxist society is determined by conscious choice (ex ante decisions) of the mass of the associated producers themselves. See International Viewpoint
8 This view of work is reminiscent of St Thomas Aquinas' description of work in the garden of Eden before the Fall, "not laborious but joyful, being the exercise of his natural powers", nec tamen illa operatio esset laboriosa sicut post peccatum, sed fuisset jucunda propter experientiam virtutis naturae, Summa Theologica part I, question 102, art. 3
9 Karl Marx, Grundrisse, notebook VI (1858), tr. Martin Nicolaus (Penguin, London 1973) p 611. Charles Fourier (1772 - 1837) was a French philosopher and sociologist who promoted workers' cooperative communities.