Making The Workers Pay? - Part 5

The Floating Reserve

The Floating Reserve, as I described in Part 4, is made up of workers who move in and out of the labour market, thereby accommodating the cyclical movements of the economy. Often, this reserve is concentrated within certain sections of the workforce, and indeed, those sections, which previously formed the Latent Reserve – the Peasantry, Women, Children, Immigrants – provide the basis for the Floating Reserve. But, in developed economies there are always unemployed workers of all sorts at any one time, and this is a basic requirement for the functioning of the system. As old industries decline, and others rise, workers need to move from one industry to another. In the meantime, they may need to be retrained, certainly they will need to find new jobs, and maybe new homes in other locations. This is what economists call frictional unemployment. In a growing economy it is not a bad sign, but an indication of dynamism and change. The periods of unemployment for workers affected in this way, are not very long. Moreover, because such periods of unemployment are a normal part of the functioning of the economy – as opposed to unemployment caused by an economic crisis – the workers wages have to cover such periods, in just the same way that workers wages have to cover them for the other aspects of what is required to ensure their reproduction, such as insurance against sickness absence, and old age. These costs, because they are part of the normal costs of reproducing Labour Power, are an integral part of the Value of Labour Power.

In fact, viewing things in this light, it is possible to understand the logic for Capital behind the introduction of State run Unemployment Insurance and Benefits. As I stated, previously, in relation to China, the absence of such State run insurance and welfare schemes, means that workers will always tend to over compensate. An individual worker can never know if they will be ill, or what their healthcare costs might be. They will never know if or for how long they will be unemployed. They will not know how much the education costs for their children might be, or how long they may spend in retirement. In order to be on the safe safe side, workers will always tend to overestimate these costs, and try to ensure that they save enough money to cover them. In an economy like China, that focuses on exporting its production, this might not be a problem. The workers savings do not go into consumption, but there is sufficient external demand to soak up the production anyway. The workers savings – around 50% of income in China – are used to finance investment, to increase production even further.

However, no economy can continue to expand on the basis only of exports, and doing so results in fundamental imbalances, as well as making the economy increasingly subject to external shocks over which it has no control. When the US and European economies slumped after the Credit Crunch, China was forced to take decisive measures to stimulate domestic consumption, so that the massive output from its factories could be consumed, the profits from that production realised, and the workers kept in employment. China needs to shift the balance of its economy to increase its domestic market, and is taking steps to do so, including encouraging big increases in Chinese workers wages. But, it also needs to shift the balance of Chinese workers wages away from such high levels of savings and towards consumption. After all higher wages might simply result in more saving. The most effective means of doing that, as US and European Capital found during the last century is the establishment of a Welfare State.

The Welfare State, acts as a huge insurance scheme into which the workers are forced to pay. It means that instead of each worker having to estimate their own requirements, those requirements can be calculated as an average for the whole class of workers. Because, the reality of unemployment, sickness, and so on taken as an average is much lower than what any individual worker estimates it to be for themselves, the amount that actually needs to be set aside to cover these things for workers as a whole is significantly less than workers individually would set aside. In other words, the amount of savings – what Keynes calls the Precautionary Demand for Money – can be significantly reduced with the introduction of a Welfare State, and this means both that more money is available for domestic consumption, and the reduced demand for Money means, lower rates of interest, which can in turn stimulate economic activity.

The other thing here is that because the average wages the workers need to cover these eventualities has fallen, over time, this is reflected in the Value of Labour Power. Consequently, wages can fall, raising profits. The workers receive in their wages, the equivalent Value sum, required to cover this element of their reproduction i.e. the cost of insuring themselves against unemployment, sickness, old age etc., and then hand this over to the State, as an insurance premium, out of which the State then funds the provision of these Welfare services.

However, as stated above, in calculating the Value of Labour-power, what is taken into account is only that amount, which, on average, is required to cover the reproduction of Labour Power under conditions of full employment i.e. under conditions where all available Labour Power is employed other than for that, which is frictionally unemployed. Consequently, covering such unemployment via a state run Unemployment Insurance Scheme, just like covering Health Insurance, or Education provision, by a similar scheme, represents a more efficient system for Capital, which reduces the Value of Labour Power, and raises profits. That is why all developed economies introduced Welfare States.

However, because what is included in the Value of Labour Power is only insurance for these periods of frictional unemployment, it can also be seen why these State run insurance schemes have only covered short periods of unemployment. If workers are unemployed, not because they are simply moving from one job to another, as part of the normal functioning of the system, but are unemployed for longer periods, because the system has itself entered a crisis, then this is no longer a question of ensuring the reproduction of the necessary labour-power, because under such conditions, less labour-power is itself required! Under such conditions, from the perspective of Capital, the Unemployment Benefit is being paid out to sustain Labour-power, which it does not actually need. It is a cost over and above what is required for the reproduction of the necessary Labour-Power, and therefore constitutes a deduction from Surplus Value.

Here then we see yet another contradiction faced by Capital. On the one hand the introduction of the Welfare State, and in this instance, the provision of Unemployment Insurance, best meets its needs for ensuring the efficient reproduction of Labour-Power, on the other, when the system enters into a crisis it is not easy to reduce this provision.  Of course, in addition to these efficiency savings, which raise the rate of profit, it also benefits from ideological reinforcement of the system, because such provision encourages the idea of the neutrality of the Welfare State, thereby hiding its true class nature. However, when the system goes into crisis, that imposes additional costs on Capital reducing the rate of profit below what it would otherwise have been, and any attempt to remedy that by cutting Benefits, as happened in 1931, risks exposing the true class nature of the State, and the image of the Welfare State, as some beneficent provider.

The significance of the Floating Reserve in dealing with this contradiction can then be seen. It can act as a convenient safety valve or regulator for Capital. Perhaps, the clearest example of that can be seen in relation to the peasantry. The only country, as Marx points out, which has ever come close to the ideal of having a working-class in the pure sense is Britain. In the Grundrisse, Marx describes Labour as “Not Capital”, and Capital as “Not Labour”. In other words, for both to exist in their ideal, pure condition workers must own no Capital, whereas, Capital must do no Labour. Such conditions never exist. In Germany, for instance, until quite recently, a significant number of workers retained some connection to the countryside. Many had small holdings, or plots of land, from which they could obtain some income, or at the very least provide themselves with a modest amount of food. That is not uncommon in other European countries. In Russia in during the Civil War, faced with starvation in the towns and cities, millions of workers who had only just come from the countryside, returned to their villages, where they could have some hop of being able to feed themselves.

This is a classic example of the Floating Reserve. Capital, not requiring the available Labour Power, is able to dismiss it without the need to pay for its subsistence, or face the social and political consequences of refusing to do so. Instead, this Floating Reserve, disappears from the labour force, and provides for its own subsistence by other means essentially outside the sphere of Capital. But women workers, child workers and immigrants can also perform this function for Capital.

Because of the essential characteristics of human reproduction parents subsistence has to be financed by Capital, whether they are employed or not. Having said that, Aldous Huxley, in “Brave New World” described the ultimate of the Fordist, Welfare State, in which children could instead be brought up in State run orphanages, where that State could ensure that they were more effectively indoctrinated, and turned into efficient workers who loved their exploitation! Given that industrial Capitalism developed within the existing framework of a paternalistic society, where the role of child rearing, and the care for the sick and elderly within the home, was assigned to women, it was natural that it would adapt to that reality.

As a consequence, an obvious solution for Capital in meeting its fluctuating needs for Labour-Power (some of which, of course is always dealt with via things such as overtime working) is to utilise female labour-power. Where Capital cannot meet its needs by overtime working, it can draw in female workers. There is a whole discussion that has taken place in the Marxist and Feminist movements about the role of female labour-power, around the question of wages for housework, and so on, which I do not have space to deal with here. In short, let me simply say that it depends upon the conditions and time scales involved. For the reasons set out above, about the nature of human reproduction, in conditions where women do not in general work – for Capital – then their subsistence has to be covered in the wages paid to male workers. In conditions where, in general, women do work for Capital – which in itself means that a variety of economic and social changes are required, such as the mechanisation or socialisation of domestic labour – then their subsistence will tend to have to be covered in the Value of their own Labour-power. In reality, it will also depend upon the structure of households, for example, are the majority of households based upon families (which will tend to make household income more significant), or are they based upon individuals (which will make individual income more significant).

But, likewise, when Capital faces some kind of crisis, and its demand for Labour-power falls, it is convenient for Capital to be able to dismiss female workers as part of a Floating Reserve, and for them to disappear from the labour force, back into the domestic sector, just as happens in many less developed economies with peasants. A concomitant of this, for Capital, is that having returned to the domestic sphere, this female labour-power should not simply represent an additional cost for capital either in the form of payments of welfare benefits, or in the form of a requirement of higher male wages to cover their subsistence. In other words, having returned to the domestic sphere, this female labour power, like that of the peasant, must be capable of covering its own subsistence by other means. That is why, under such conditions, there is usually some attempt to also move some of the social and welfare functions that were taken on by the State – which were part of those economic and social changes referred to above required to free female labour-power for use by Capital – back into the domestic sphere.

In fact, from the perspective of modern industrial Capital, this does not have to be female labour power. To the extent that men are prepared to become house-husbands, to undertake the tasks of child-rearing and caring etc., then this provides industrial capital with greater flexibility, particularly where the structure of employment is such that it has come to rely on female labour-power more than that of men. It is just that Capital, particularly Big Capital, is very opportunistic, and rather than rock the boat, it is more than happy to adapt to the social conditions in which it finds itself, rather than to try to change them.

Of course, much of what has been said above in relation to female labour-power can also be said in relation to immigrant labour power. In fact, to the extent that Capital can utilise guest worker schemes, such as those in Germany, it can reduce even some of the contradictions it faces in utilising female labour-power. But, it does so only by creating new contradictions. On the one hand, it requires an increasingly costly, and oppressive State apparatus to police “illegal” immigration. On the other, as recent experience in Britain has shown, attempts to place caps on immigration, merely result in shortages of particular types of labour-power, which in turn cause economic problems.

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