Monday June 17, 2024

The question of surplus value

By Hussain H Zaidi
May 05, 2021

Since the advent of the Industrial Revolution in England during the 18th century, one question that has probably sparked more debate than any other is whether the interests of the working class and capitalists can be reconciled. In the language of German philosopher Hegel, if workers are a thesis and their employers the antithesis, is a synthesis between the two possible?

Hegel’s disciple Karl Marx is at the forefront of thinkers who would categorically answer the question in the negative. His claim is undergirded by the notion of surplus value, which itself rests on the labour theory of value. The theory was formulated by classical economists, who provided the intellectual basis of capitalism during the Industrial Revolution. As the theory goes, the value of a product turns on the amount of labour put into it. In other words, labour is the source of all value. The more labour does a worker put in, the more value he takes out in the form of wages. The outcome would be “natural justice.”

The classical economists put forward the labour theory of value to advocate laissez-faire – literally translated as ‘leave them alone’ – economics, which to date remains a cardinal principle of capitalism. The essential idea is that natural order being inherently beneficial necessarily brings in happiness and prosperity for individuals. By the same token, left to themselves, market forces have the tendency to usher in an optimal outcome in the long run, or, as Jeremy Bentham, another staunch exponent of capitalism in its early days, would call it, "the greatest happiness of the greatest numbers." Government intervention in the market would only make matters worse. Thus, the best thing that the government can, and should, do is to keep its hands off economic activity and let, in the words of Adam Smith, the father of economic science, "the invisible hand" of the market act freely.

Marx used the labour theory of value to spotlight exploitation of labour and by implication the irreconcilable conflict between those who own the means of production – the bourgeoisie – and those who provide their blood and sweat to them – the proletariat – and the inherent instability of capitalism. The main analytical notion that he used to that end was surplus value.

As Marx saw it, the surplus value is the difference between the value of a commodity produced by labour and the remuneration that workers get for exchanging their labour. It is the basis of all corporate profits. In order to maximize profits, the capitalist class would give the workers only that much wages which are necessary for their bare survival, while appropriating to itself the rest of the value of the products sold. Thus, while the proletariat create all the value, they get only peanuts in return – or subsistence wages. As the capitalist system grows from strength to strength, the exploitation of labour – or surplus value – goes on increasing and so does the class conflict, which in the end will cause capitalism to break down. For Marx, demise was the inexorable destiny of capitalism.

While history has advanced from the first Industrial Revolution of Marx’s age to the 4th Industrial Revolution of the present era and capitalism is still alive and kicking having fended off one challenge after the other, the notion of surplus value has not lost its relevance. The doomsday scenario for capitalism aside, the basic idea is that those who own the means of production prosper at the expense of those who provide their sweated labour to keep the wheels of the industry moving. In a broader sense, wealth is being concentrated and economic inequalities are widening on the back of capitalist growth.

According to the Global Wealth Report 2020, a Credit Suisse publication, the top one percent of wealth holders in a country typically own between 25 and 40 percent of all wealth, while the top 10 percent generally account for between 55 and 75 percent of the total wealth. The report further notes that at the end of 2019, millionaires across the world, which constituted one percent of the adult population, held 43.4 percent of the global net worth. At the same time, 54 percent of adults with wealth less than $10,000 cumulatively accounted for less than 2 percent of the global wealth. At the end of 2019, the number of millionaires worldwide reached 51.9 million, of which the US – the globe’s largest economy and the bastion of capitalism – accounted for 39 percent.

Among those 51.9 million millionaires, some 175,690 owned net worth exceeding $50 million each. Their number went up by 11 percent during 2019. The US accounted for 84 percent of this increase. Of these, 55,820 were worth $100 million or more, while 4,410 had wealth in excess of $500 million.

According to a recent Oxfarm paper (‘Power, Profits and the Pandemic’), the Global Fortune 500 corporations saw 156 percent surge in their profits from $820 billion in 2009 to $2.1 trillion in 2019. Their profit growth far outpaced global economic expansion, thus exacerbating economic inequalities. From 2016 to 2019, the top 59 most profitable companies worldwide gave away nearly $2 trillion to their shareholders, equal to on average 83 percent of these companies’ net earnings.

The Covid-19 pandemic is making this skewed distribution of wealth even worse. Of all the factors of production, labour has been hit hardest by the pandemic. Governments all over the world were forced to lock down cities or otherwise restrict the movement of the people. Labour intensive enterprises and industries were doomed to bear the brunt of the infection. They were the first to shut down and will be the last to pull the shutters up. As low income, low skilled people generally work in labour intensive sectors, they have been most severely affected.

Although governments, including in Pakistan, announced special incentives for enterprises to encourage them to retain their workforce, the authorities’ willingness or capability to ensure that the businesses just don’t walk away with the incentives without keeping the workers on the payroll has come under question.

Among workers, daily wage earners or those working in the informal sector have been hit hardest by the pandemic. This class of workers, which lives on the margins, gets paid or earns as they work – no work, no pay. The fact that most of them live in crowded places in extremely unhygienic conditions makes them highly susceptible to catching the virus. If by a stroke of luck they avoided the virus, they will be crushed by the economic squeeze.

According to the above-mentioned Oxfarm paper, which was published in September 2020, 400 million jobs have been lost during the pandemic. At the same time, 32 of the world’s most profitable companies were set to rake in $109 billion more than previous years during 2020. Those companies had distributed $1.4 trillion among their major shareholders between 2016 and 2019.

Between the capitalists and the workers there is another class, whose emergence Marx was unable to foresee. These are the professional managers, with the CEO at the top, who actually run a big organization. Their position is akin to that of the bureaucracy in the government. Like workers, they don’t own an enterprise and are paid for their work. But unlike workers, who struggle to keep the wolf out of the door, they get mouth-watering salaries. The surplus value isn’t a drag on their interests, and they also represent an antithesis of workers. According to a Bloomberg report, CEO compensation in the US has expanded more than 900 percent over the past four decades, compared with a meager 12 percent raise for the typical worker.

Like Marx, the classical economists had also predicted the collapse of capitalism. However, unlike Marx for whom capitalism would be pulled down by its internal contradictions, the classical economists had apprehended that capitalism’s “virtues” would inexorably bring about its fall. Their argument was that the process of economic growth would ultimately lead to a slump in profits, which are the mainspring of economic activity in a capitalist economy.

It seems not only the detractors but the defenders of capitalism too had underestimated its strength. The surplus value for mega enterprises, which are the real face of capitalism, is on the increase.

The writer is an Islamabad-based columnist.


Twitter: @hussainhzaidi