Monday, September 01, 2008

Capital vs Labor

The battle of capital vs labor has been raging since the beginning of time. Since the beginning of the industrial revolution the advantage has almost always been with capital. The struggle between the West and the communist revolution was a major front in this "war". The utopian concepts of Marx, Engels and Lenin were never going to exalt labor over capital because labor has no power without capital's gears to propel the movement forward. Before modern mechanization and transportation there was perhaps a fragile balance between the two. Time marches on and fragile doesn't hold up well over time.

In modern times - post WWII - labor began losing ground rapidly starting in the 70's and 80's. People can cite President Reagan's firing of the Air Traffic Controllers as the defining moment, but the mass exodus of labor intensive jobs began accelerating in the 70's.

Steel mills, mining operations, auto manufacturing and hundreds of other heavy industries began feeling the pressure of foreign competition in the 70's. Politically there was a deliberate shift in the Reagan years toward capital over labor with the concept of trickle-down and supply side economics. The adage "a rising tide lifts all boats" was the mantra for those on the side of capital.

Concurrently there was the rise of Japan and new management/labor relations techniques taking root in the U.S. that disfavored acrimonious union vs management attitudes. When Japanese manufacturers set up shop in America they almost always located in what were called right to work states where labor unions were not always welcome. As the manufacturing-based society gave way to the service/information-based society American workers saw less and less advantage in collective bargaining and union brotherhood.

This is the way it went for the next 20 years. In the 90's communism as a economic model died with a whimper and global capitalism was the clear victor. After any "battle" there is chaos on the ground - and so here we are...

Currently the number of American workers that are unionized is a tiny fraction of what it once was. Only government serving labor unions are growing. The question is one of balance. Where has the decline of labor union power led us? Does balance need to be restored?

There are those that argue that real wages and buying power for the average "worker" in the United States has stagnated or declined since the 80's. Personally I find it hard to make that case when one sees the wealth and material possessions of the average Joe in 2008. Real poverty rates have held steady in the U.S. since the 60's when President Johnson launched a massive wealth transfer scheme called the Great Society. Trillions spent on reducing poverty only succeeded in concentrating it in urban America. Who is to say it wouldn't have happened that way regardless, but the flight of wealth to the suburbs makes it hard to point to labor's decline a devastating factor.

If using poverty as a measuring stick for the impact of capital over labor is valid - and the United States is largely unchanged despite the massive upheaval of labor, then we need to turn to world poverty as a arbiter.

New estimates of the extent of the developing world's progress against poverty are interesting. Using the frugal $1 a day standard, we find that there were 1.1 billion poor in 2001 - almost 400 million fewer than 20 years earlier. Over the same time period, the number of poor declined by more than 400 million in China. The number of poor outside China rose slightly over the period primarily due to declining conditions in Sub-Saharan Africa. A marked bunching up of people between $1 and $2 a day has also emerged. If these trends continue, then the aggregate $1 a day poverty rate for 1990 will be halved by 2015, though only East and South Asia will reach this goal.

Surely it is almost impossible for us to imagine living on $365 a year, but the point is that global poverty is declining. As the modern world accelerates into the third world (provided Africa stabilizes politically) poverty could be in permanent decline. Would this be due to the decline of labor's power in the West? Good question. Capital is flooding into countries with large labor pools and these are the very countries seeing the greatest reductions in such devastating poverty.

The exploited masses in this "new" labor force will have to battle it's way to the same place American labor did. As the labor force attains a certain affluence higher wages and better conditions will be demanded just like they did in the West. When labor becomes too expensive capital will move, just like it did in the West - and poverty will continue to decline, right?