Paul Krugman Discovers Marx (and Misses the Point)

Paul Krugman Karl MarxIn his recent New York Times op-ed piece, Princeton professor and regular columnist for The New York Times Paul Krugman observed:

“The American economy is still, by most measures, deeply depressed. But corporate profits are at record high. It’s simple: profits have surged as a share of national income, while wages and other labor compensation are down. The pie isn’t growing the way it should – but capital is doing fine by grabbing an ever-larger slice, at labor’s expense.”

And then he adds with almost shocked incredulity: “Wait – are we really back to talking about capital versus labor? Isn’t that an old-fashioned, almost Marxist sort of discussion, out of date in our modern information economy?”

This is exactly the conflict that Marx identified as the fundamental, inescapable contradiction of the capitalist system that would eventually create the conditions of its downfall: there is a tendency for the owners of businesses, the capitalists, to accumulate ever-vaster wealth while the people who work for them experience a declining standard of living.

Marx supported this conclusion by offering a description of the fundamental operating mechanism of capitalism. Capitalism is based on the principle of private ownership and competition.  Private businesses compete with one another for customers, and those who fail to attract a sufficient number eventually perish. But in order to attract customers, businesses must maximize the quality of their product while minimizing its price. If two products embody the same quality but one is cheaper, customers, in pursuit of their self-interest, will purchase the cheaper version, all other factors being equal.

This means that capitalists must constantly attempt to minimize the price of their product simply for the sake of their own survival. If a business devises a way to lower costs, it can capture the market. But, as Marx pointed out, labor costs are a huge factor in determining the price of a product. So those businesses that minimize labor costs can prevail in the dog-eat-dog world of capitalism. For this reason, a downward pressure on wages and benefits is always operating to one degree or another.

But Krugman made no reference to this aspect of Marx’s analysis and instead identified two other factors that contribute to the growing inequality in wealth between capitalists and workers, both of which are discussed by Marx.

The first factor involves the introduction of technology into the labor process, i.e. “labor-saving” technology. In other words, machines replace workers or reduce the amount of skill required in the labor process. To give a current example, software has been developed that analyzes legal documents at a fraction of the time it takes lawyers while costing much less.  Accordingly, many well-paid lawyers lose their jobs to such software. Living during the industrial age, Marx supplied many such examples.

Krugman referred to his second explanatory factor that increases inequality between capitalists and labor as the “monopoly power” of large corporations where “increasing business concentration could be an important factor in stagnating demand for labor, as corporations use their growing monopoly power to raise prices without passing the gains on to their employees.” Here Krugman is approaching the heart of Marxist theory.

Krugman is basically arguing that large corporations use their power to override purely economic trends and simply demand that their employees work for less. But this is precisely the point of Marxism, although from the other direction. Marx persistently argued that capitalism could not function without the willingness of the working class to perform the work. When workers organize and engage in collective action by withholding their labor, the balance of power shifts in favor of the workers who can then demand higher wages as a condition for their return to work, as the ILWU (International Longshore and Warehouse Union) recently did on the West Coast and the teachers did in Chicago.

Amazingly, Krugman never mentions the decline of organized labor as a huge factor explaining the decline of the standard of living of working people, adding that there has been so little discussion of these developments. But others, especially former Secretary of Labor Robert Reich, have discussed these trends and identified the decline of labor as a major factor.

In the 1930s when labor unions were tenaciously fighting for working people, huge gains were made in terms of salaries and benefits. They conducted militant sit-down strikes and mobilized tens of thousands of people from the community to support labor’s struggles. Their successes were to a large degree responsible for the emergence of the so-called middle class that thrived in the 1950s and 1960s.

Workers who are organized, acting both collectively and forcefully, can change the economic landscape. But once organized labor becomes complacent and relaxes its guard and ceases to struggle, the laws of capitalism ineluctably grind down their gains and the growing inequality returns until workers again rise up.

Marx argued that eventually workers would see the futility of this repeating cycle, reject capitalism altogether, and begin to construct a socialist society built on entirely humanistic and democratic principles.

In a recent New York Times article on unionizing workers at the bottom of the pay scale, a union organizer was quoted as saying, “We must go back to the strategies of nonviolent disruption of the 1930s.” Currently organized labor is all but dying out. Strikes are like an endangered species. Rather than engaging in militant struggles, union members are urged to elect Democrats who then call on workers to accept sacrifices.

AFL-CIO President Richard Trumka has called on working people “to fight like hell” to resist cuts to Social Security and Medicare. But these are just words. To this date, the unions have failed to mobilize their members to stage massive demonstrations across the country against cuts to these popular social programs – demonstrations that could culminate in hundreds of thousands of working people descending on Washington, D.C. to make their demands clear to the Obama administration and the rest of the politicians.

Without the unions taking the lead in this struggle, there is little individual workers will be able to accomplish. And if the unions refuse to return to their more militant roots but remain invisible, economists like Paul Krugman will continue to ignore their existence and overlook their current historic failure to defend working people.

Ann Robertson and Bill Leumer 

Thursday, 13 December 2012

Comments

  1. Robert Letcher says

    Let me begin by thanking Robertson and Leumer for writing on our Uncle Charlie’s ideas. These days, I find myself increasingly often reacting to news reports and news analyses with a soto voce admonition, “Should’ve read your Marx!” I greatly appreciate their company in reconstructing Marxism, the title of a 1992 book by Erik Olin Wright, Andrew Levin, and Elliott Sober, which they compel me to commit to reading

    But, I think Robertson and Leumer would have been more faithful to what their Uncle wrote for them, myself and other critics of contemporary capitalism—including Krugman, I daresay—had they taken less liberty in their characterizing Professor Krugman as “discover[ing] Marx” based on a single mention by Krugman of Marx in a single publication by Krugman. Based on my experience studying political economy at Cornell, it’s essentially impossible to earn the PhD in that field without “discovering” Marx somewhere along the way—or at least it was back when I earned the doctorate, and Professor Krugman earned his diploma even earlier than I did.

    In addition, Robertson and Leumer would also have done better to cite Krugman’s writings more widely and to attend more closely to the detail of Krugman writing that they do cite. Apparently, Krugman wrote the following:

    “Wait – are we really back to talking about capital versus labor? Isn’t that an old-fashioned, almost Marxist sort of discussion, out of date in our modern information economy?”

    To which Robertson and Leumer responded with their own thoughts:

    “This is exactly the conflict that Marx identified as the fundamental, inescapable contradiction of the capitalist system that would eventually create the conditions of its downfall: there is a tendency for the owners of businesses, the capitalists, to accumulate ever-vaster wealth while the people who work for them experience a declining standard of living. Marx supported this conclusion by offering a description of the fundamental operating mechanism of capitalism…”

    These excerpts demonstrate the need for greater attention to detail of which I wrote above. First of all, Krugman’s main purpose was not to mount a frontal assault on Marx, the task that Robertson and Leumer spent their whole effort describing. It seems to me that the main focus of what Krugman wrote was to draw attention to the potential disconnect between capital-labor strife back when capitalism was constituted by industrial production and which Robertson and Leumer scold Krugman for misunderstanding and the capitalism of our “modern information economy”. Which is why I mentioned Reconstructing Marxism.

    Let me close my comment with a personal anecdote. Some fifteen years ago, I had the good fortune of visiting the Reuther Center In Maryland, just outside of DC. I was unemployed at the time, but I decided to buy one T-shirt to mark the occasion. Two T-shirts interested me.. One read, “Will teach for food”. The other showed an industrial process-type of facility, with hard-hat wearing workers at work on it. It also bore the wording: “Workers create all value.” I settled on the latter, because even then it wasn’t clear to me what Marx would say about the modern information economy”.

    With that I close. I have endeavored to write this critique both reasonably and respectfully. I’d appreciate feedback in both dimensions.

    PS: please se my other writings, many of which bear on similar topics, at URL = http://www.laprogressive.com/author/robert-letcher/

  2. Thomas Cleaver says

    “But once organized labor becomes complacent and relaxes its guard and ceases to struggle…”

    Which sadly is exactly what the AFL-CIO did, starting right after World War 2 (hell, they did it during World War 2 when they failed to organize among all “those people” who were moving into the war industries and weren’t white males). They collaborated with the CIA to destroy democratic unions in Europe and South America, they collaborated with the Empire and its wars on the belief that “war is good for business and jobs.” I well remember an argument back in 1967 with my cousin, then an official in the Oakland local of the IAM, with him telling me the war was good because there were more jobs for his members. We never spoke again after I asked him if his members were OK with sacrificing their sons for their jobs.

    Due to the failure of the American labor movement to understand the need for independent labor political power, and their buy-in on the myths of American “exceptionalism” and the “classless society” (a “middle class” income does not in fact make one middle class if one is in the working class, something they failed to notice) of America, they went along with collaborating with their enemies who they failed to recognize since all they could see was the next employment contract. We look at the strong unions in Europe and fail to notice that they were the founders of the Social Democratic Parties and the Labor Parties, and their members understood the class nature of society and could recognize The Enemy when they saw them.

    We don’t even have to go deep into events like the Hard Hat Riots in NYC during the war, the votes of “patriotic workers” against the “dirty hippies” and that “peacenik” George McGovern in favor of Tricky Dick Nixon, or “voting their values” for Reagan so he could start the next year destroying unions. The American working class has a long tradition of voting against their own interests, going back to the poor whites who formed the heart of the Traitor Army in the War of Southern Treason when they fought for Ol’ Massa’s right to keep slaves and thus keep the “patriots” poor and ignorant.

    I remember in 1973, when we were one vote away from killing the San Onofre nuclear power plant in its cradle, denying its license at the Coastal Commission, of which my then-boss was the chairman. He bought our arguments against that atrocity, and then the head of the California AFL-CIO called him up and told him if he “voted against all those jobs” he could kiss his statewide political ambitions good-bye. Funny thing, “all those jobs” never showed up, and San Onofre was and is the atrocity it always was. Had the AFL-CIO been willing to see that die like it should have, and then back the then-strong environmental movement on moving to alternative energy, there would be a whole unionized industry in America that would have solved all sorts of problems.

    Sorry, but as a long-time union member, people talking about the “progressivism” of the majority of American organized labor have no clue what the hell they’re talking about.

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